Weekly Market Snapshot – March 30th, 2020

Created by: Sam Tenney

As of March 26th, domestic banks are no longer required to keep any cash reserves on hand with the federal reserve banking system. Generally these reserve’s help shore up liquidity mismatch in the market so banks always have cash on hand to cover deposits, making this legislation concerning given the current market environment.¹
Initial unemployment claims from the US department of labor came in at 3.28 million claims for the week, the highest single period of unemployment claims since recording started. This is *4 the peak of unemployment in 2008.²
As of March 23rd, the Federal Reserve has initiated the Term Asset-Backed Securities Loan Facility (TALF). TALF’s goal is to issue securities backed by student loans, credit card loans, and auto loans among other consumer facing loans. This is accomplished by buying the underlying assets, meaning this facility is to largely take underwater assets off the open market and get them onto the fed’s balance sheet instead.³

SOURCES

1. https://www.federalreserve.gov/monetarypolicy/reservereq.htm

2. https://www.dol.gov/sites/dolgov/files/OPA/newsreleases/ui-claims/202005…

3. https://www.federalreserve.gov/monetarypolicy/talf.htm

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Weekly Market Snapshot – March 23rd, 2020

Created by: Sam Tenney

Federal Reserve St Louis member James Bullard predicts the US economy will see 30% unemployment and possibly 50% reduction in GDP by second quarter 2020 due to corona virus related economic shutdowns.¹
As of Monday, March 23rd, the Federal Reserve has created the Secondary Market Corporate Credit Facility (SMCCF). The objective of the SMCCF is to buy investment grade corporate bonds from the open market or ETF vehicles to support liquidity in these assets. In the same announcement the Fed has also uncapped QE restrictions, meaning they will buy any amount of government bonds back from investors.²
The Bank of Japan (BOJ) in response to market troubles has agreed to double the central bank’s annual spending on ETF purchases, intended to more directly stimulate the Japanese market. As of Wednesday March 18th, losses on the BOJ’s preexisting ETF holdings reached 3 trillion yen.³

SOURCES

1. https://www.bloomberg.com/news/articles/2020-03-22/fed-s-bullard-says-u-…

2. https://www.federalreserve.gov/newsevents/pressreleases/monetary20200323…

3. https://www.nippon.com/en/news/yjj2020031800740/boj-held-etfs-carrying-2…

Weekly Market Snapshot – March 16th, 2020

The Federal Reserve called an emergency meeting Sunday, March 15th, to lower the federal funds interest rate. The rate was cut from 1.25-1.00%, to 0.25%-0.00%, reducing it 1%. This is the single largest emergency rate cut in the Federal Reserve’s history.¹
During this emergency meeting the Federal Reserve also initiated their 4th Quantitative Easing program, offering 700 billion dollars in long term liquidity for banking institutions holding government bonds. The Quantitative Easing program was developed after the subprime crisis in 2008 as a method of adding liquidity into the banking system while keeping asset values and interest rates stable. If you’ve been following along with our blogs we’ve noted before that restarting QE was an inevitable conclusion to the Fed’s repo operations given the lack of liquidity in the market. In our private research Quarter 4 of 2019 was the timetable we were expecting for them to fully restart QE programs, at which point the market was still reacting bullishly to any stimulus offered by the Fed. Given current market conditions however investors have been reacting negatively to stimulus now, likely because they interpret it as further confirmation of ongoing stress in the markets.²
The yield curve for US treasuries has fully un-inverted on every time frame now. While longer duration treasury yields are still deeply depressed, all treasuries have performed well in current market conditions, but there is more risk in holding longer duration treasuries going forward.³

SOURCES

1. https://www.cnbc.com/2020/03/15/federal-reserve-cuts-rates-to-zero-and-l…

2. https://www.ft.com/content/4ad7dc26-67a5-11ea-a3c9-1fe6fedcca75

3. https://www.treasury.gov/resource-center/data-chart-center/interest-rate…

Weekly Market Snapshot – March 9th, 2020

The Perfect Storm

I consider myself an optimist, Natalie, my wife, considers herself a realist. With that in mind, we would like to share some ”real” observations from an optimistic person. Warning, the following may sound pessimistic.

What has been brewing in the economy has the potential to be a “perfect storm”…what do I mean? Below are some highlights of economic and market conditions leading up to and currently in place today:

Corporate debt- Over the past ten years, as we’ve all enjoyed lower interest rates, corporate America has loaded up on cheap debt. Much of this debt was used to buy back their own stocks (at expensive prices), which is used to financially “engineer” higher earnings per share. Think of this as you refinancing your house, taking the cash out to buy stocks (at all-time highs) and paying a small interest rate. This works well when stocks are going straight up and you can make a nice arbitrage. It doesn’t work so well when stocks fall and you still owe on the debt. Another concern is that 20 years ago, of the companies whose debt was considered investment grade (higher quality) only 17% of these companies were rated BBB (lowest rating of what is considered investment grade). Today, well over 50% of investment grade bonds are rated BBB, thus the credit ratings of companies have decreased during good economic times (20% of the decline coming during the economic recovery the past 11 years). See link here. Interestingly, the interest rate paid by these companies have fallen, while their credit ratings have worsened. Does that make sense? I’ll come back to this later as rates are rapidly increasing now.
Liquidity- Since September 2019 the Federal Reserve has had to provide liquidity to the Repo market (overnight and short-term loans banks provide to other banks). As a result of liquidity shortfalls, interest rates spiked from 2% to 10% last September. I won’t pretend to know exactly how this market works, just know, it is another red flag that the internal plumbing of the financial system has some cracks.
Growth slowing- Prior to the Coronavirus outbreak, we had been in a period of 12-18 months of deceleration in economic growth. We were still growing, just at a slower pace. Employment, personal income, and consumption were still growing, although the growth rate was trending downward for all three. Manufacturing both in the US and globally had gone into negative or contraction. However, there were early signs that this trend was going to reverse back to accelerating growth. The economy was at a tipping point; it would rebound from 18 months of declining growth and extend the economic expansion or fall into a recession.
Stock Valuations- Regardless of which valuation measurement you use, it seems the consensus view has been that stocks have been overvalued (expensive).
Government debt- As a country increases their debt, the impact to stimulate the economy becomes less effective and ultimately causes a strain on the economy, because repayment (even with low interest rates) drag on future growth. The US and countries around the world are at their highest levels of debt throughout history causing a drag on growth.
Election year- Enough said!
Complacency- There has been a lack of volatility in recent past. All of the issues above have been known for some time without any apparent concern (at least in the stock market until the past three weeks).
Newer News: We had a new strain of the coronavirus, COVID-19 impact and spread throughout the globe, with over 118,000 cases and 4,267 death’s worldwide as of 3/10/2020. The actual impact of the disease was not as concerning as the uncertainty surrounding the economic effects, which seemed to be causing a significant and noticeable slow-down in China. Current containment measures in Italy are showing similar worrisome signs for economic growth and leading many to question about what impact this may have on the rest of the globe as the disease spreads.
Newest News:Oil dropped due to an expected global economic slowdown and a price war between oil producers causing prices to plummet.

If you look at the number of infected persons in Italy, currently 167.9 people per million in population, we could end up with almost 55,000 infected people in the US (as of today we are just over 1,000). Lets take out the sensitive, human impact for a minute (I know these are human beings, children of God, I’m not trying to diminish that) and look at this only from a financial perspective. Common sense says the health risk is less serious than many other risks, for example: the flu, drugs, driving a car, etc. However the financial impact is significant because of the human reaction: events canceled, travel restricted, social distancing, etc. We have already seen major changes, some temporary and some may become permanent. This is where the reality and uncertainties come into play. Sure, if the virus scare is very short lived, we can go back to our lives as normal and potentially ignore many of the conditions mentioned above. Or the virus could be the excuse to start dealing with the reality of the other issues we are facing, as well as the new issues that may arise such as, corporations paying more for their financing, less corporate stock buy-backs, more pressure on corporate profits, layoffs, and then a recession. We don’t know what our new reality may be with regard to our jobs, future viruses, travel, work places, etc. or if there will be a new reality.

The combination of these factors has created a “perfect storm” and has led to wild market swings and uncertainty in the financial markets overall. The bond market is pricing in (predicting) a bad recession as US government bond rates have fallen to historic lows again, below 1%, an all-time low as of Monday. Meanwhile the cost of borrowing for companies is spiking as risk concerns resurface.

One bright side of this market turmoil is very low mortgage rates. In the past two weeks, most lenders have taken as many applications as they did in the entire year of 2019. You may want to consider starting an application to reduce your interest rate…rates are unpredictable as lenders are dealing with crazy volume, so be patient and only refinance if the rate and transaction work for you.

Surprises leads to panic, and panic leads to rapid price moves, which leads to opportunity (the optimist). After the storm, this too shall pass. We have taken measures over the last few days and months to be more conservative and defensive. Don’t panic, we will do our best to guide you through the perfect storm.

Sam Tenney, CFP & Lorie Jones, CFP

Tuesday, March 3rd, The Federal Reserve issued an emergency rate cut of 50 basis points. This is the largest rate cut to happen since 2008, and the first emergency rate cut since the collapse of Lehman Brothers in 2008. ¹
US Government 10-year bonds have hit all time low yields of 0.55% as of Monday, March 9th. An extremely low yield like this may signal a flight to quality assets, an expectation of low inflation, and extremely thin risk premium taking.²
Monday, March 9th, the S&P 500 index declined 7% within the first 5 minutes of market open. This triggered a market-wide circuit breaker, which halts trading for 15 minutes. This is the first circuit breaker event to happen since December of 2008. The corona-virus continues to be a major contributor the decline in markets.³
Crude oil prices on March 9th had the largest single day price drop since 1991, losing 26% of its value, at $30.98 a barrel. Refusals to limit production by OPEC (mainly Saudi Arabia and Russia) have been the main driver behind this fall in oil’s price. This volatility in oil prices is adding an additional degree of uncertainty into markets.

SOURCES

1. https://www.washingtonpost.com/business/2020/03/03/economy-coronavirus-r…

2. https://www.marketwatch.com/story/10-year-treasury-yield-falls-to-all-ti…

3. https://finance.yahoo.com/news/rout-u-stock-futures-trigger-221631295.html

4. https://www.cnn.com/2020/03/08/investing/oil-prices-crash-opec-russia-sa…

Dinner at the Denver Children’s Home

Fidelis Wealth Advisors was honored to serve dinner at the Denver Children’s Home (DCH) this week and learn more about this community organization and the wonderful things they are doing to help our local youth. It is our goal through the donation of time, that in a small way these children feel cared for. We appreciate our client’s participation and value giving hope through community involvement and charitable events.

The DCH offers a variety of treatment plans for traumatized children and their families. They work with several community resources as well as focus on experiential therapies that range from music courses, equine therapy, and yoga to name a few. Additionally, DCH offers a fully accredited school to help struggling kids finish their education.

The history of the Denver Children’s Home (DCH) runs deep. In 1902, the Home moved to its current location and in 1962, the Denver Orphans Home was renamed the Denver Children’s Home where they began to concentrate exclusively on helping children who have suffered severe abuse or neglect with serious mental health issues (https://www.denverchildrenshome.org/about). Today, the DCH allows interested parties to sign up and cook for their residential children in their industrial kitchen. Fidelis enjoyed our time doing this making memories and helping to serve our community.

Weekly Market Snapshot – February 24th, 2020

Created by: Sam Tenney

I wanted to provide a quick update on the coronavirus and how we see its potential impact on investments short and intermediate term. As Warren Buffet warned this morning, you shouldn’t make an investment decision to buy or sell based on the whims of the current news, rather based on the long-term. Even with the long-term in mind, the stock market falling 3% or more in a day can be unnerving.

I do think it is important to understand where the economy is now and how the coronavirus epidemic could provide a shock to the economy in the short to intermediate term. I can’t speak to the seriousness of the virus or what the coming days will bring for its eventual eradication or the continued spread into a full-blown pandemic.

The US economy is in a vulnerable position and susceptible to external shocks, such as the coronavirus, or an unexpected outcome of the presidential election or any number of other events. Even if the US does not experience a major epidemic, our economy is impacted by the rest of the world. The supply chain of goods to the US and the globe has already been disrupted. Further spreading of the virus threatens trade and the global economy. Given the current signs of weakness, a shock to the global economy that lasts for 3 to 6 months would likely push us and other countries into a recession. If the Fed does lower interest rates (which the market is expecting now), this will have the potential to soften the economic shock although historically, if large employment losses add up, a recession occurs regardless of lower interest rates.

We have positioned our client portfolios more defensively based on these risks (as well as high valuations and others we’ve previously mentioned) and we are looking for openings to take more risk as the opportunities present themselves and fundamentals improve. We will pray that the coronavirus epidemic is eradicated quickly, and China and the rest of the world can recover.

Sam Tenney

The IHS Composite Purchasing Managers Index, Composite PMI, fell sharply to 49.6%. This is a contractionary environment for the private sector, driven by a large decrease in business new orders and employment growth. ¹
The Federal Reserve Minutes for January 28th noted that the Fed Board believes the Coronavirus to warrant close watching, as it could disturb global growth. Since the time of the meeting, January 28th, the estimated cases worldwide were around 4,600 and now on February 21st we have around 77,000 cases worldwide.²
Japanese GDP has shrunk 6.3% for the quarter on both a large sales tax increase reducing consumption spending, and coronavirus fears hitting manufacturing. Japan is currently the third largest economy in the world measured by GDP.³

SOURCES

1. https://tradingeconomics.com/united-states/composite-pmi

2. https://www.federalreserve.gov/monetarypolicy/files/fomcminutes20200129.pdf

3. https://www.japantimes.co.jp/news/2020/02/17/business/economy-business/s…

4. https://www.marketwatch.com/story/fed-holds-benchmark-interest-rate-stea…

Weekly Market Snapshot – February 3rd, 2020

Created by: Sam Tenney

The Federal Reserve Open Committee met on January 28-29, 2020, and voted to raise the interest on excess reserves by 10 basis points, as well as continuing repurchase agreements through April of 2020. This is done to incentivize banks to keep more cash on hand at the Federal Reserve.¹
Gross Domestic Product for the United States grew at 2.1% in 2019, down from 2.9% in 2018 and missing the Trump administration’s target of 3% by a wide margin.²
The United Kingdom (UK) is officially leaving the European Union today January 31st, 2020. The long-term economic effects for the UK of this decision could include declining per capita income, trade imbalances, and declining wage rates.³

SOURCES

1. https://www.federalreserve.gov/newsevents/pressreleases/monetary20200129…

2. https://www.ft.com/content/3746c864-4362-11ea-abea-0c7a29cd66fe

3. https://www.bbc.com/news/uk-politics-32810887

Weekly Market Snapshot – February 3rd, 2020

Created by: Sam Tenney

Unemployment rose slightly to 3.6% this month, leaving its 50-year low of 3.5%. Employment added 225,000 jobs this month, however last quarter had revisions of 422,000. This highlights a trend of divergent initial reports from actual data, as shown by the graph to the right courtesy of EPB Macro Research¹
Consumption continues to lead Gross Domestic Product growth for the full year 2019, with 1.3% growth in consumption. This however is slower than 2018, in which consumption growth was 2.1% of GDP. Periods of slowing growth are often very volatile market years, even if the indicators are still positive. ²
The International Monetary Fund has conducted research which places the financial cost of lending and interest rate restrictions to be about 0.4-0.7% average reduction in total growth annually. This study by the IMF brings into question the positive effects that market controls are said to play in many economies, emerging and developed alike.³

SOURCES

1. https://www.marketwatch.com/story/us-adds-225000-jobs-in-january-as-hiri…

2. https://am.jpmorgan.com/blob-gim/1383452890099/83456/weekly_market_recap…{“fid”:”396″,”view_mode”:”teaser”,”fields”:{“format”:”teaser”,”alignment”:””},”type”:”media”,”field_deltas”:{“1”:{“format”:”teaser”,”alignment”:””}},”link_text”:”weekly_market_recap 2-7-2020.pdf”,”attributes”:{“class”:”media-element file-teaser”,”data-delta”:”1″}}]]

3. https://blogs.imf.org/2020/02/06/interest-rate-controls-capital-flow-res…

Fidelis Wealth Advisors is volunteering at The Denver Children’s Home

The Fidelis Wealth team will be serving dinner at the Denver Children’s Home on Thursday, March 5 from 3-7pm. We will be cooking a meal for kids who have survived trauma, neglect, and abuse; and we would like to invite anyone else who wishes to help this great cause. Please click on the RSVP link on our blog to sign up to help.

Without these home cooked meals, provided by local volunteers, kids at DCH would only have meals that have been prepared and packaged offsite. Fidelis and the Home will provide all the cooking materials and utensils needed to prepare the meal, as well as a meal plan to account for the children’s dietary restrictions, so you will not need to bring anything with you for this trip.

The Denver Children’s Home has been a charitable fixture in the Denver community for almost 120 years now. The home is dedicated to its mission of helping children who have suffered severe abuse and neglect confront serious mental health issues. The organization is always looking for volunteers to help achieve its mission, and provides many ways you can volunteer your time and services to the organization. One of the volunteer opportunities they offer is cooking a home made meal for the children, and we think this is a great way to give back to the Denver community.

Time and Date: Thursday March 5th (03/05), at 3:00 pm until 7:00 pm

Location: 1501 Albion St, Denver, CO 80220

If you are interested in volunteering with us, RSVP using the button below.

To read more about the Denver Children’s Home and its long history in Denver, please visit https://www.denverchildrenshome.org/

The Denver Children’s home mission –

Denver Children’s Home provides a comprehensive therapeutic and educational continuum of care for our region’s abused, neglected and traumatized children and their families with mental health issues. We offer prevention, intervention, and treatment programs grounded in trauma-informed care and the latest in brain-development research.

We help children using proven, evidence-based treatment and prevention practices that guide our program planning and treatment strategies. Denver Children’s Home is a pioneer in using brain-based research and trauma informed care. We utilize positive behavior incentive programs and Dialectical Behavior Therapy (Core Mindfulness, Distress Tolerance, Emotion Regulation, and Interpersonal Effectiveness) to equip children and teens with knowledge and skills that they can use for the rest of their lives.

I am pleased to announce that Lorie Jones, CFP®, has become an owner of Fidelis Wealth Advisors.

Lorie has been with me since day one and she is an important part of Fidelis’ success thus far.

Lorie started as a receptionist seven years ago, since then she has earned her MBA and CFP designation, and now her office duties include serving as a wealth advisor and as our operations manager. Lorie has come a long way from her days as a receptionist and is now a partner in a thriving wealth management firm, while continuing to focus on her marriage of 24 years and raising five children. We can only imagine what her future will bring as she continues to innovate and refine her skills. She is now studying for the Chartered Financial Analyst (CFA) level 1 exam in June.

Lorie is a real-life example of how hard work and devotion to doing what is right, brings opportunity and success. Lorie has a unique drive to get things done; she is kind and is passionate about making decisions based on what is right for our clients. I am grateful for her partnership as an employee these past two and half years. Lorie embodies the values that represent Fidelis because she has helped shape them. Please join me in congratulating Lorie!

Sam Tenney