The Numbers & “Heat Map”

Sources: Index Returns: Morningstar Workstation. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Three, five and ten year returns are annualized. Interest Rates: Federal Reserve, Mortgage Bankers Association

The health of the economy is a key driver of long-term returns in the stock market. Below, we assess the key economic conditions that we believe are of particular importance to investors.




The consumer was the bedrock of the US economy through much of the previous decade. However, our Consumer Health grade remains VERY NEGATIVE as a result of the unprecedented social distancing and quarantining efforts currently being employed to fight the spread of COVID-19.



Coming into the year, analysts were expecting mid to single digit earnings growth, but the spread of COVID-19 is likely to have a substantial impact on near-term earnings forecasts. However, earnings could bounce back quickly once the pandemic has run its course.



April’s non-farm payrolls report was historically ugly. We expect continued stress in the labor market due to the suppression of economic activity necessary to combat the spread of COVID-19.



The deflationary environment created by COVID-19 should provide additional room for robust stimulus from both fiscal and monetary policy initiatives. However, we will be watching closely in the intermediate term for second and third order effects leading to a return of inflationary pressure.



The US Government has passed a series of fiscal measures to combat the economic impacts of the COVID-19 pandemic. The largest of these measures, known as the CARES Act, provides approximately $2.2 trillion of support for businesses and families that are impacted by business closures and unemployment.



In response to the threat of COVID-19, the Federal Reserve has implemented two emergency rate cuts and has moved its target interest rate back to zero. Additionally, it has announced its intention to conduct further asset purchases to support markets. We believe that the Fed is doing all it can to support the economy and markets.




With COVID-19 being declared a global pandemic, our geopolitical risks rating is VERY NEGATIVE. However, we think it is important for investors to disentangle the public health concerns over the near-term from the expectations for markets over the long-term. The pandemic will ultimately prove to be transitory in nature.



The economic impacts of the COVID-19 pandemic are likely to be substantial. However, we believe that the eventual economic recovery (which will be aided by historically large economic stimulus) may occur more swiftly than from previous economic shocks.

The “Heat Map” is a subjective analysis based upon metrics that VNFA’s investment committee believes are important to financial markets and the economy. The “Heat Map” is designed for informational purposes only and is not intended for use as a basis for investment decisions.

The Markets This Week

by Connor Darrell CFA, Assistant Vice President – Head of Investments
Last week brought a continuation of recent trends, where market performance seemed to diverge meaningfully from underlying economic and market fundamentals. U.S. equities ended the week over three percent higher, while the bond market posted small losses. Oil prices built upon the prior week’s gains, rising by over $5 per barrel as countries around the globe continue to take steps toward reopening their economies. However, oil prices remain extremely low compared to historical norms.

The most impactful market news last week was the release of April’s nonfarm payrolls report, which provided a glimpse into the severity of the economic damage wrought by the coronavirus pandemic. The Bureau of Labor Statistics reported that 20.5 million jobs were lost in April, pushing the unemployment rate to 14.7%, the highest since the World War II era. Adding to the pain was a footnote in the report which suggested that the unemployment rate would have been as high as 19.7% if certain workers were classified differently in the data. Job losses were concentrated (but not confined) in industries most affected by social distancing measures, such as hospitality, travel, and retail. No matter how the data is sliced, the impacts of the pandemic on labor markets has been incredible.

However, while economic data and stock market returns do not necessarily measure the same thing, they are undoubtedly closely related, and many investors are struggling to understand the dynamics that have led to the divergence we have observed in recent weeks. Some of this is likely due to the differences in what constitutes the building blocks of the labor markets/GDP, compared to the composition of corporate earnings as measured by constituents in the S&P 500 index. The most impacted sectors of the economy make up a significantly larger component of the employment picture than they do of the S&P 500. Additionally, stock markets tend to reflect forward expectations, while economic data is a measure of the past and present. Taken together, this suggests that while the economic toll has been extremely high, markets anticipate the future to be better.

As we move forward, markets will likely continue to remain hyper-focused on new information that helps to provide clarity on how soon and how expansively economies can resume some semblance of normality. For now, there seems to be some optimism surrounding the re-opening of some economies in Europe and Asia, which have not seen extreme resurgences in the prevalence of COVID-19.  Markets will also be watching the medical community closely, where the White House has reported that it has “fast tracked” 14 potential vaccine candidates in the hopes that one will prove to be effective and can be made available by early 2021. 

Did You Know…?

VNFA Q&A: Schedule K-1 Tax Documents
Can you spend some time talking about Schedule K’s, specifically for individuals such as myself who own stock in a company that mails this tax document to partners. It’s a little confusing as to what you report to the IRS and when you do report it.

In recent years, many investments that have been made by investors include limited partnerships or Master Limited Partnerships, especially in energy.  The partnership files a Form 1065 and reports the partners’ shares on a 1065 Schedule K-1. More recently, many of these partnerships are switching to corporations which will then convert to stock rather than partnership interests or units. Dividends paid on stock get reported on a 1099DIV.  K-1s may be issued to shareholders of an S Corporation via a 1120S K-1 or to beneficiaries of estate and trusts using 1041 K-1. Click here to read the full answer on our website.

“Your Financial Choices”

Tune in Wednesday for “Your Financial Choices” on WDIYRetirement plan options under the CARES Act and RMDs

Laurie will be recording the show Tuesday to air at the normal time, Wednesday, 6-7 p.m. She will answer questions that have been submitted via

Live episodes of “Your Financial Choices” are postponed until further notice as Laurie and her guests are working from home in response to guidance around the COVID-19 pandemic. WDIY will continue to broadcast prerecorded local shows as well as available NPR programming. Please continue to support local radio!

Recordings of past shows are available to listen or download at both and