Monthly Archives: August 2020

Did You Know…?

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Regulation Best Interest (BI) and Our Clients
by Matthew Petrozelli, CEO
Regulation BI is designed to establish a “best interest” standard of conduct for broker dealers and associated persons when they make a recommendation to a retail customer of any securities transaction or investment strategy involving securities, including recommendations of types of accounts. Last week, in compliance with the U.S. Securities and Exchange Commission (SEC) and Regulation BI, we sent a new regulatory document out to all existing clients – Form CRS. This form provides our clients and the investing public with more transparency around our broker dealer, Valley National Investments, Inc., and our Registered Investment Advisor Firm, Valley National Advisers, Inc. Fees, costs and conflicts of interest are highlighted in addition to important links that help educate new clients. Since the delivery of Form CRS, I want to share some FAQs:

Does my relationship or the fees I pay with VNFA change?
No, this is a disclosure document only. All fee and compensation arrangements are still the same as is your relationship with your advisor.

What is the difference between Valley National Advisers (VNA) and Valley National Investments (VNI)?
VNA is a SEC Register Investment Advisor, which means that our Financial Advisors are held to a fiduciary standard and are obligated to put their clients’ interests ahead of their own. Clients who use VNA are charged an asset management fee and/or separate flat/hourly fee for planning. VNI is a FINRA registered broker dealer that provides securities to clients for a commission. VNI focuses on sale of securities and does not offer discretionary investment management.

Why have both?
VNFA is dedicated to giving our clients the most options. Most of our Financial Advisors are dually registered and can help clients navigate what is best. Today, we see most of our clients use VNA as it has more options for customization for planning, wealth management, and uses a fiduciary standard.

Do I need to take any action?
No. Please reach out to your Financial Advisor if you have specific questions. Regulations have changed significantly since our firm was founded in 1985. For 35 years, VNFA has been committed to core values anchored in a client-first culture. Our team always has and will continue to serve the best interests of our clients in pursuit of their financial goals.

The Markets This Week

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by Maurice (Mo) Spolan, Investment Research Analyst
Stocks were up around 2% last week, closing out July with gains near 6%, a very strong month of returns. Nonetheless, Q2 GDP fell 32.9% on an annualized basis, the fourth-greatest decline in the last 100 years, according to MFS Investments. Corporate profits are also in deterioration, as Q2 earnings have thus far arrived 36% below last year’s figures, the largest slump since 2008.

Tech stocks were in the spotlight as antitrust hearings investigated the extent to which economic power is concentrated in Amazon, Google, Facebook and Apple. Not ironically, such companies reported growing revenues in Q2 while the “brick-and-mortar economy” struggles gravely during the global pandemic. Tech stocks continue to hold an outsized position in the major indices and are therefore a major driver of the market’s resiliency in 2020.

Unemployment benefits officially expired on Friday while Congress remains in discussion to provide the next round of support. Though the two parties are still distant in their proposals, it is highly probable that a deal of some magnitude will be passed. Updates will be provided in future commentaries as news materializes.

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

 GDP declined at an annualized rate of 32.9% in Q2, the fourth-largest fall in the last 100 years. Although the figure is staggering, it was in-line with economists’ expectations.

CORPORATE EARNINGS

VERY NEGATIVE

 Earnings have declined by 36% thus far in Q2, the sharpest year-over-year decline since 2008.

EMPLOYMENT

VERY NEGATIVE

 Non-farm payroll increased by 4.8 million jobs in June, led by the Leisure & Hospitality sector, as the unemployment rate declined to 11.1%. However, the unemployment rate remains historically high and is still 7.6% higher than it was in February.

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

 Unemployment benefits, which have been instrumental in stabilizing the economy, expired at July’s end. Congress is working to pass another fiscal package; however, the two parties remain distant on the appropriate size of the stimulus.

MONETARY POLICY

VERY POSITIVE

 The Federal Reserve has supported asset markets with unprecedented speed and magnitude in response to COVID-19.

GLOBAL CONSIDERATIONS

GEOPOLITICAL RISKS

VERY NEGATIVE

 The relationship between the US and China, the world’s two largest economies, was already weakened by the trade war but has deteriorated further as a result of Covid-19.

ECONOMIC RISKS

VERY NEGATIVE

 The impacts from COVID-19 were as swift and pronounced as any shock in modern times. Robust monetary and fiscal stimulus stabilized the system, and several measures of the economy improved in May and June. However, economic activity remains well-below that in 2019, and uncertainty remains very high.

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.

Quote of the Week

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“Our goal is that with the help of the community, collectively [ArtQuest Foundation board] will raise at least $1 million to support ArtsQuest and Musikfest, a number that symbolizes the one million people who attend the festival each year. If even half of our Musikfest fans give only $1, we’ll reach that number.” – Thomas Riddle, chair of the ArtsQuest Foundation board (and VNFA’s Founder & Chairman) READ MORE

“Your Financial Choices”

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Tune in Wednesday, 6 PM for “Your Financial Choices” show on WDIY: Regulation Best Interest

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.

TAX TIP

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IRS statement on interest payments
Interest on individual 2019 refunds reflected on returns filed by July 15, 2020 will generally be paid from April 15, 2020 until the date of the refund. Interest payments may be received separately from the refund. READ MORE