Letter to clients - March 27, 2020

Congratulations on not panicking and selling in last week’s horrible sell off! Give your future self a high five. The Dow and the S&P 500 have recovered from the lows set last week by 20%. This large rebound technically ends a very short bear market and is the start of a new bull market, although I would not be surprised if we tested our market lows one more time before we have a large move upward. There is a saying that bear markets die on bad news.

The market moved up despite 3.3 million people filing for unemployment, the worst ever, but not as bad as some were predicting. It is important to know that the markets and the economy do not run in parallel. Generally, the stock market is about six months ahead of the economy. We expect this quarter’s economic numbers to be one of the worst ever recorded, but this appears to be priced into the market.

As I have written previously, for markets to stabilize, we need to see coronavirus cases begin to flatten. At this point we have no indication of this, and many models show we may be a few weeks out. We also need to understand what the final stimulus bill will look like. By this evening, we may have a final vote in the House on the “Coronavirus Aid, Relief, and Economic Security Act” also known as the CARES Act. Here is what we know now as it relates to personal finance.

• Individuals with a gross income of up to $75,000 will be eligible for the entire $1,200 amount. The payments will be phased out up to $99,000 of income, when it is completely phased out and no payments will be made. Married couples earning up to $150,000 are eligible for up to $2,400 a couple and will be phased out up to $198,000.
• Student loan payments are suspended through September 30, 2020.
• Those taking Required Minimum Distributions (RMD) from their retirement accounts are NOT required to in 2020. This can be a great tax savings and allows portfolios to stay invested during the recovery.
• If you are affected by the coronavirus, you will not be charged the 10% penalty (up to $100,000) for a 401k withdrawal pre age 59 ½. Income tax on the $100,000 would still apply but can be paid over three years. If you put the money back in within three years, then no tax would be paid. To qualify you, your spouse or child must have had the virus or have lost your job-related income due to the virus.
• You can now borrow double the normal amount from your 401k. The maximum amount is now $100,000. The loan payment for a new or existing 401k loan can be delayed for the remainder of 2020.

If anyone has a job loss, reduction in pay or any other cash flow concern, please do not hesitate to reach out to us. We are here to help you through tough times as well as prosperous ones. We are available on GoToMeeting for review meetings or on-demand meetings.

Written by: Casey Smith

Posted 3/27/2020