With the election, Covid pandemic, and the president’s health converging, the cacophony makes it easy to miss important signs that the economy is doing fine. The pace of the recovery has slowed from the breakneck rate after CARES Act federal aid created a surge in consumer income, spending and savings in April, May and June. But the latest data indicate the U.,S. economy could return to its record run-rate earlier than expected. Here are the facts.
At Fulbright Financial Consulting, PA in Durham, NC, this is a good sign for the economy but we would love for it to be lower. Progress is like watching paint dry: It happens so slowly and in such unpredictable streaks that you can easily miss what’s going on right before your eyes! So it goes with the newly released annual report on poverty in the United States from the U.S. Census Bureau. At a time when the world seems like it’s changing faster than ever, and not always for the best, the poverty rate dropped again in 2019, to a new all-time low.
Is A Stock Bubble Bursting? Stocks plunged as much 6.6% last week, and, even though prices rebounded sharply by the end of the week, fear remains widespread. Despite the grim mood, the evidence is strong that the stock market is not in a bubble and that the economy is chugging along, on track for a long, slow ride to recovery. For a bubble in stock prices, irrational exuberance must be widespread, like it was during tech bubble of 2000. It’s not! Nothing like that is happening now! Covid crushed consumer confidence in March and April. Much of the uncertainty is caused by the runaway gains of the giant tech stocks. Facebook, Amazon, Apple, Netflix, Google, and Microsoft – the FAANGM – have led the recovery from the pandemic, leaving the broad market in the dust. And, because the major indexes are weighted by market capitalization, the super return on the giant FAANGM has powered a 42% gain in the S&P 500 since the March 23rd. 2020 bear-market low. The turbocharged returns of the major market indexes fueled by FAANGM are a Covid crisis anomaly, but FAANGM valuations are not out of control. The PEG ratios of the FAANGM – that is, their price-to-earnings ratios divided by the growth rate of their earnings, a more thorough metric than a standard P/E ratio, have not been outlandish, even as the price of the S&P 500 was breaking a new record high last week. In the months ahead, due to Covid-induced economic anomalies, stock plunges should be expected. The anomalies are bound to add uncertainty along the road to recovery. In March and April, for insatnce, consumer spending plunged because people were not going out and spending. At the same time, government payments from the CARES Act arrived in consumer accounts, disposable income hit a new record high, and the savings rate simultaneously skyrocketed by nearly 400% -- and this was happening at worst point of the Covid crisis! These conditions are without precedent and may take months to unwind. The latest economic data show a continued recovery in the manufacturing sector in August, with new orders booming. Meanwhile, in the much more-important service sector, responsible for 91% of jobs in the U.S., the latest figure – while not as a strong as expected -- remained strong in August, and the unemployment rate dropped much lower than the 9.9% rate that was expected, to 8.4%.. Amid the fear of a bubble in the FAANGM and anomalies of the Covid pandemic, the U.S. recovery is chugging along, slowly working its way back to the economic peak of 2019. Please contact us with any questions or to set up a meeting firstname.lastname@example.org , and don't hesitate to share this video with people who might benefit from our work
Putting The Market's Surge in Proper Focus It’s almost like the stock market is on another planet, with its record-breaking performance while the real-economy seems to be a different world. But when you take a closer look, the separation of the market from the real economy is not so mysterious but driven by “Covidnomics -- the unique economics of the Covid pandemic. The FAANGM companies -- Facebook, Amazon, Apple, Netflix, Google, and Microsoft -– led the economic recovery after the Covid shutdown, and they have roared ahead of the broader market. But appreciation in shares of FAANGM share prices are magnified enormously in the performance of the major stock indexes, like the Standard & Poor’s 500, which weights each company by market capitalization –- the price times the number of all shares outstanding. The largest 25 companies in the S&P 500 account for about 42% of its return, while the smallest 25 of the 500 companies in the index accounted for just three-tenths of 1% of its return. The huge losses sustained by the smallest 25 companies are hardly a factor in the market-cap weighted S&P 500 index, but they reflect the world of pain in the real economy. Of the 500 stocks in the S&P 500, 294 suffered share-price declines so far in 2020 and the average loss was 24.1%! At the same time, it’s also important to note that the FAANGM stocks are not wildly overvalued. The PEG ratios of the FAANGM – their price-to-earnings ratios divided by their earnings growth rate – are not unreasonable, nothing like a stock-bubble of 1999! With stock indexes breaking records, remember that the S&P 500 is NOT the real economy. It’s just Covidnomics, just one of many financial economic anomalies caused by the Covid pandemic shutdown and recovery. Please contact us with any questions or to set up a meeting email@example.com , and don't hesitate to share this video with people who might benefit from our work
Covid Hits Private Wealth The Coronavirus is leaving a path of economic devastation, transforming the landscape of investing and taxation, and it’s challenging families to act on new risks and opportunities in managing their wealth. It’s an abrupt change in conditions, and it amounts to a "perfect storm“ threatening family wealth. Across the nation, state governments are forecasting huge budget shortfalls State and city tax revenues have plunged in the pandemic but government services, like transportation and police, continued to be provided, with no letup in expenses. Meanwhile, federal government emergency stimulus payments to individuals and financial aid to businesses have added a whopping $2.4 trillion to Uncle Sam’s long-term debt! And for the first time, the national debt is larger than the annual gross domestic product! With hikes to state and federal income taxes as well as transfer taxes on the horizon, it’s wise to review your situation with this new tax outlook in mind. For individuals with taxable estates, the current $11.58 million per person exemption from estate and gift tax will be cut in less than half on January 1, 2026. However, the exemption amount could be slashed much sooner, depending on the outcome of the November 3 election. Maximizing annual gift-tax exclusions, making charitable donations, and establishing trusts can make a big difference in preserving your family’s values, and the downside risk of failing to plan has increased. Every month, the IRS releases the minimum interest rates you are permitted to charge on loans to family members, trusts, and other entities. With this "applicable federal rate" currently at less than 1%, loans may be a savvy way to transfer wealth to the next generation for buying a home, starting a business, or making charitable bequests. With the pandemic potentially lowering the value of real estate and business assets, and frequently causing stock market volatility, optimizing low rates to make intrafamily loans may suddenly be a more viable solution to reduce taxes and boost your legacy. Finally, with tenants more often unable to pay rent, and a tidal wave of small business failures expected, landlords and business owners suddenly face an explosion in their liability exposure. Asset protection strategies to mitigate personal liability and creditor exposure require preparation before a problem arises or may not hold up to legal challenge. The destruction wrought by the virus crisis has changed tax and financial conditions and requires proactive engagement of family members as well as advice from tax, legal and financial professionals. Please contact us with any questions or to set up a meeting firstname.lastname@example.org , and don't hesitate to share this video with people who might benefit from our work
.Covid Crisis And Your Financial Affairs The Covid pandemic is causing families unimaginable suffering and grief, and it’s forcing many individuals to confront mortality, to consider in very real terms what will happen when their life is coming to an end. What happens to you at the end of your life is governed largely by a handful of documents. A durable power of attorney permits someone else to manage financial matters while you’re living, empowering someone you name to pay bills, write checks, or sell and purchase assets on your behalf. A health care proxy and living will names someone to make medical decisions if you’re unable to express your wishes and contains instructions about end-of-life care. This is top-of-mind for a lot of people now, understandably. A last will and testament provides the details take effect at your death for disposing of your property, and should be reviewed annually to make sure that the trustee and executor as well as guardians of minor children you appoint conform to your current wishes. A revocable trust also provides for the disposition of your property after you die but avoids the probate court process. Because courts across the country were shut down for a time and are are dealing with a surge in filings and probate cases due to the pandemic, it’s more important to have a revocable trust to avoid probate court delays. To set up a revocable trust, you’ll need to retitle bank and brokerage accounts, real estate, and other assets, so it involves signing documents with a witness present and this has become more complicated during this time of social distancing, but remote signings can be done online. It’s important to speak with family and friends, or whomever you’re appointing, about your wishes, so that they’re aware of your plans. You also want to be certain beneficiary designations on retirement plans and life insurance policies are up to date. Please contact us with any questions or to set up a meeting email@example.com , and don't hesitate to share this video with people who might benefit from our work