Daily Archives: June 23, 2020

VNFA NEWS

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Help us help Northeast Community Center!

As part of our Volunteer Challenge project, we are launching an awareness campaign for our non-profit partner – Northeast Community Center. NECC serves the Marvine-Pembroke community of Bethlehem, and since the start of the COVID-19 pandemic, they have been a food pantry hub for even more surrounding areas of people in need.

In our remote socially distanced environment, #TeamVNFA has found that one of the safest and easiest ways to make a difference has been to purchase items from NECC’s Amazon wish list. Click the link here to make a purchase, and visit the NECC website to find out about other ways to help our neighbors in need.

The Markets This Week

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by Maurice (Mo) Spolan, Investment Research Analyst
Markets behaved relatively calmly last week as the S&P 500 gained about 2%. Nevertheless, investor attention has returned to the COVID-19 cases trend-line. Twenty-three states are currently reporting increasing cases, including 12 with record daily case figures. Mounting positive tests are the result of increased social activity, which provided for strong May retail numbers as sales increased more than 17% from April’s trough.

Unfortunately, for as long as we are without a vaccine, improving economic data is likely to be met by rising cases. This is because both outcomes are the result of increasing social activity. The financial markets value economic and corporate data, and so we are likely to see asset prices rise or remain steady as such data improves on the back of greater social mobility. Regrettably, however, as noted, this very social mobility seems to be the primary driver of viral spread. The main risk to the financial markets today is that the healthcare system becomes overpopulated as cases rise and additional shutdowns are made necessary. Unless such a scenario comes to pass, we should not expect the market to react unfavorably to rising cases, because rising cases are nearly certain to be accompanied by improving economic data. 

Did You Know…?

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This past weekend marked the start of summer. The June (aka Summer) Solstice was Saturday, June 20. Specifically, Saturday at 5:44 P.M. EDT marked the official beginning of summer in the Northern Hemisphere, occurring when Earth arrives at the point in its orbit where the North Pole is at its maximum tilt (about 23.5 degrees) toward the sun. For those who live in the Southern Hemisphere, this is the shortest day of the year and marks the arrival of winter.

The Numbers & “Heat Map”

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THE NUMBERS
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

MARKET HEAT MAP
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.

US ECONOMY

CONSUMER HEALTH

NEGATIVE

Consumer activity has elevated since April’s trough, as evidenced by May’s retail sales which grew strongly month-over-month. However, 23 states reported an increasing number of COVID-19 cases in the last week, including 12 states who set daily records for cases.

CORPORATE EARNINGS

VERY NEGATIVE

 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.

EMPLOYMENT

VERY NEGATIVE

 2.5 million jobs were added in May, in large part driven by the return of furloughed workers. The figure represents the greatest monthly increase in jobs since at least 1939, and a stark divergence from economic consensus which expected further unemployment. Nonetheless, the jobless rate remains historically high at 13.3%.

INFLATION

POSITIVE

 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.

FISCAL POLICY

VERY POSITIVE

 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.

MONETARY POLICY

VERY POSITIVE

 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.

GLOBAL CONSIDERATIONS

GEOPOLITICAL RISKS

VERY NEGATIVE

 Western opposition to China’s National Security Law, legislation that reduces Hong Kong’s autonomy, has amplified the discord already present between the US and China as a result of COVID-19. In addition, demonstrations across the US evidence considerable domestic unrest.

ECONOMIC RISKS

VERY NEGATIVE

 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.

“Your Financial Choices”

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Tune in Wednesday, 6 PM for “Your Financial Choices” show on WDIY:Elements of Financial Planning

Laurie has returned to the studio which means she can take your questions live on the air at 610-758-8810, or address those submitted via  yourfinancialchoices.com.

Recordings of past shows are available to listen or download at both yourfinancialchoices.com and wdiy.org.