COVID-19 Update from Meld University

School of Financial Wellness

Meld University presents COVID-19 stock market investment update

Join us for our next Meld University webinar, Preparing For Long Term Care Expenses in Retirement on October 17th at 3:00 PM CDT with speaker Blake May, J.D., CFP®, Meld Financial.

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COVID-19 by the Numbers

The U.S. has seen over 3.8 million cases and has averaged over 60,000 new cases per day over the last week. U.S. deaths have surpassed 141,000. The overall rate of infection in the U.S. has reversed course and has been trending upward in recent weeks.

Daily case data for the U.S.

There are over 14.7 million cases worldwide and over 611,000 deaths. Several countries are showing aggressive uptrends in cases, and the most obvious of those countries are the United States, Brazil, India and Mexico.

Daily case data for Brazil
Daily case data for India
Daily case data for Mexico

Data Source

Some other countries in the world appear to have gotten the pandemic under control, and those countries are in the process of re-opening tourism, schools and businesses. The countries who having success in battling the virus are easy to identify from their daily confirmed case charts. Here are a few examples:

Data Source

COVID-19 Vaccine and Treatment Candidates

Many companies around the world are working on vaccines to prevent COVID-19. There have been numerous reports on new vaccines in recent weeks, and a few others are moving into the final stages of testing.

“An investigational vaccine, mRNA-1273, designed to protect against SARS-CoV-2, the virus that causes coronavirus disease 2019 (COVID-19), was generally well tolerated and prompted neutralizing antibody activity in healthy adults, according to interim results published online [on July 14th, 2020] in The New England Journal of Medicine. The ongoing Phase 1 trial is supported by the National Institute of Allergy and Infectious Diseases (NIAID), part of the National Institutes of Health. The experimental vaccine is being co-developed by researchers at NIAID and at Moderna, Inc. of Cambridge, Massachusetts. Manufactured by Moderna, mRNA-1273 is designed to induce neutralizing antibodies directed at a portion of the coronavirus “spike” protein, which the virus uses to bind to and enter human cells.” (nih.gov)

“AZD1222, an recombinant adenovirus vaccine candidate that originated in Oxford, moved into phase 2/3 in May on the strength of data from a 1,000-subject phase 1 trial. However, the researchers are yet to share clinical data from the phase 1, leaving observers to argue over the results of a study conducted in monkeys to determine whether the vaccine is likely to work.” (Fierce Biotech)

Moderna’s Coronavirus vaccine is poised for final phase of testing. Dr. Fauci, the U.S. Government’s top infectious disease expert was optimistic, “no matter how you slice this, this is good news.” (CBS) The U.S. says Russian hackers are trying to steal COVID-19 research. “The National Security Agency, as well as its counterparts in Britain and Canada, all said Thursday that they’re seeing persistent attempts by Russian hackers to break into organizations working on a potential coronavirus vaccine.” (npr)

“The market is continuing to signal that there are haves and there are have-nots, and that doesn’t look to change any time soon.”

Barron’s, July 9, 2020

COVID-19 and the Economy

Earnings

Second-quarter earnings are estimated to drop -44% for S&P 500 companies. This is far worse than the -11.7% decline that was originally forecasted at the onset of the quarter.  (Wall Street Journal, Refinitiv)

Unemployment

New first-time jobless benefit claims were 1.314 million last week. They fell by almost 100,000, the biggest decline in a month. And, continuing jobless claims fell by 698,000 to 18.06 million, the lowest level since April 17, 2020. However, Underemployment (U-6) stands at 18%, above the highs from 2009.

Although new filings for unemployment claims have fallen 14 straight weeks from a peak near 7 million in late March, the gradual decline in recent weeks and still very high number of unemployed point to a long road ahead for the US job market to fully recover.  (US Bureau of Labor Statistics)

Stocks

The top 10 companies by market cap in the S&P 500 have returned +9.6% year-to-date and have a price-to-earnings ratio of 31.4. This proves that although the largest companies by market cap are the most expensive, they are providing investors with the highest returns.  (Wall Street Journal)

The Nasdaq 100 has outperformed the S&P 500 by over 30% over the past 12 months, with most of the divergence taking place this year.  (Wall Street Journal)

U.S. Consumer – Housing, Retail

Consumer Sentiment declined to 42.9 last week, its first decline since early May on concerns of additional outbreaks.  (Bloomberg)

Mortgage applications activity increased by a seasonally adjusted +2.2% last week, following a -1.8% decline the week prior. The two contributing indices for refinance and new purchase activity rose by +0.4% and +5.0%, respectively. The average 30-year fixed mortgage rates declined to another record low of just 3.26%.(Cetera Investment Management)

U.S. E-Commerce as a percent of retail sales is 25%. As a result of widespread lockdowns, consumers have shifted a significant portion of their spending online. (US Department of Commerce)

Emerging Markets

The MSCI Emerging Markets (EM) Index is +15.6% since May 28, well ahead of the S&P 500 Index (+4.6%) and the developed international MSCI EAFE Index is +4.2% for that same period. China’s latest rally has driven more than 60% of EM’s gains, supported by China’s relatively stronger economic growth outlook and successful virus containment efforts.

Emerging markets’ relative strength is supported by earnings. As second quarter earnings season approaches, US and EM earnings estimates continue to hold up relatively better than developed international. EM earnings are expected to fall by 13% in 2020, less than half the 29% decline expected in developed international markets, supporting LPL Financials’ preference for emerging markets over developed international stocks.

Sources: LPL Financial, FactSet

Gold

Gold climbed above $1,800 per ounce last week for the first time since 2011. This is likely due to concerns over rising Covid-19 cases and an economic slowdown.

COVID-19 and Tourism

Florida’s Walt Disney World reopened on Saturday, July 11, 2020, and while face coverings are required, there is nothing in the rules about screaming.  (Wall Street Journal)

California reversed their reopening plans as Governor Newsom ordered all bars, restaurants and wineries to shut down. Many other states have paused or reversed the re-opening of their economies.

Many countries are now blocking or otherwise restricting travelers from the U.S. due to the recent surge in cases. Some states, like New York which have seen success in battling the virus, have even implemented restriction on travelers from other states that they consider to be hot spots. Travel to Hawaii for mainland U.S. citizens still requires a 14-day quarantine, and that rule has recently been extended through September 1st.

How do we recover?

This economic recovery could take a “V” shape, as recent market gains point to a speedy recovery.  However, some economists suggest that dire news is not being factored into recent gains. They suggest that the recovery could look more like a “L” or “U”. They point out that even after there are treatments available, the economy could take months to resume functioning as it did before the shutdowns.

According to Liz Ann Sonders from Charles Schwab, in the future we could see an increased debt to GDP ratio from countries spending their way out of recessions, decreased globalization as distrust of China grows, increased health screenings and decreased tolerance of working while sick. She also believes we could see more fiscal caution from both businesses and governments that realize how unprepared they were for COVID-19, in addition to increased cautious behavior from individuals regarding financial decisions and social interactions.

What does this mean for investors?

Investors should stay invested, as those who “cash out” often miss the market’s best days. According to Putnam Investments, investors who remain invested over a 15-year period earned 9% returns while investors who missed the 10 best market days only earned 4.13%. If investors cash out, they will also lock in their losses. It’s important to keep money in the market to keep it working.

Look for investment opportunities and stay focused on how you can benefit from short-term dislocations. Ultimately, the market should stabilize, and it still provides a 6.1% annualized historical return over the past 20 years, even when including pandemics and global financial crises.

Final Thoughts

Stay safe and healthy and take proper precautions when you are away from your home. Also, make sure your estate planning documents are in order. This includes a healthcare power of attorney and living will.

If you are looking for financial guidance during this time of great uncertainty, don’t hesitate to contact a member of the Meld Financial team. Our proprietary Wealth Management system, Financial Fingerprint™, is designed to help you stay on the path to financial security.

To stay up to date on financial information and tips, visit Meld University. At Meld U, we provide valuable, no-cost resources such as articles, webinars, in-person classes and other information to help you stay on top of your financial situation.

Why Meld Financial?

Meld Financial, Inc. is an independent wealth management firm located in Birmingham, AL.

We specialize in financial planning, investment management, employee benefits and executive benefits for individuals, families, trusts, foundations and institutions.

We provide independent and objective services melded with customer-driven financial goals.

Mark McGarvey - President - Meld Financial

“We will always recommend the same course of action we would choose for ourselves, given the same circumstances.”

-Mark McGarvey, President