Skip to content

Kulig Financial Perspectives April 2020

This issue covers:

  • Recap of the First Quarter’s Market Events
    • Economic Repercussions
    • Road to Recovery
    • Portfolio Impact
  • Financial Actions to Take
    • Social Distance Yourself from Covid-19 Scams
    • How to Spend Your Stimulus Check
  • Closing Thoughts

Recap of First Quarter Markets

What can one say about the first quarter of 2020 for investors? March was so difficult. By now you have heard the statistics: from the February 19th peak, the S&P 500 Index shed 34% to its most recent low (St. Louis Federal Reserve). That’s roughly in line with the average bear market pullback (LPL Research), with bear markets being defined by at least a 20% sell-off.

However, the rapidity of the decline, rather than its depth, was particularly unsettling. The 34% drop occurred in just over one month. It’s unprecedented.

But what we are seeing in the economy is without precedent, too. There is an enormous amount of uncertainty. Many industries that require person-to-person interactions are being shut down. And many of the service-related companies that remain open have seen a significant drop in traffic.

Since there is no modern precedent on which to model economic forecasts, the second-quarter projections for GDP have been incredibly wide. If we connect the dots, the economic uncertainty has translated into earnings uncertainty which in turn has translated into incredibly volatile markets.

Economic Repercussions: a government-induced economic coma

In order to slow the spread of the pandemic, the government has encouraged social distancing, and several states have ordered lockdowns or strict shelter-in-place mandates. You may go outside to exercise or head to the grocery store, but there is a ban on social gatherings, which would spread the virus.

While social distancing will slow the spread of COVID-19, the economic impact has been unparalleled. In a way, the government is putting key sectors of the economy in a coma, as it hopes to stem the spread of the virus. When health and safety dictate, the goal is to bring the ‘patient’ out of the coma.

But policymakers aren’t expecting the economy to bounce back on its own. If shutdowns are encouraged or enforced, policy is being put into place to revive the patient when the time comes.

The government response to soften the expected economic blow has been extraordinary and goes well beyond what we saw during the 2008 financial crisis.

The Federal Reserve has not only dropped the fed funds rate to zero, but it has implemented several programs designed to support Treasury bonds, investment-grade corporate bonds, commercial paper (short-term IOUs issued by the largest corporations), money market funds, mortgage-backed securities and municipals. A new program designed to support small- and medium-sized businesses is in its second wave of funding.

During the financial crisis, the Fed’s focus was on Wall Street and critical credit markets. Today, the scope of support extends well beyond Wall Street and into Main Street.

In addition to mitigating some of the damage from surging layoffs, the Federal Reserve and the Federal government are trying to put a foundation in place that will support a robust economic recovery.

Will it work? Much depends on the duration and severity of the recession and the path of the virus.

Road to recovery

Four steps are important:

  1. The massive response by the Federal government and the Federal Reserve. While continued volatility is likely, the rebound from March’s low was fueled by the Fed and the $2 trillion stimulus plan.
  2. A peak in new U.S. corona virus cases and subsequent decline.
  3. An effective treatment and vaccine.
  4. Clarity on the economic data. What will be the steepness and duration of the recession?

No one will ring a bell that sounds the all-clear signal. Collectively, markets attempt to price in future events. Given the wide range of outcomes, volatility has been the rule. Does the recent market rebound mean we have seen the bottom in stocks? No one knows for certain.

Portfolio Impact

When I get questions about market direction and what to do with portfolios, we always to return to your financial plan, which is always important, but especially at times like these. It is our roadmap in good times and bad. When should you change your asset allocation? Not in response to market events; instead, your personal financial circumstances should be your guide.

It also seems that there is confusion over money required for short term needs, and what is truly longer term money which one can afford to put at risk. Always be sure you are clear on which is which. I am a big fan of having emergency funds in a liquid, readily accessible account that is separate from investment funds. We never want to put money at risk in markets that you may need in hard times. When markets were good, I would sometimes hear complaints about money that “just sits there not earning anything.” I don’t think anyone is complaining about having emergency cash now.

Assuming your plan is in place, you should be able to ride this period out and prepare for investment opportunities which lie ahead. I am confident this pandemic eventually will pass, and I am confident that the underlying fundamentals of the U.S. economy will recover. Resilience and ingenuity are part of the DNA that makes up America. What I cannot say is when and how this might happen.

If you have questions, concerns, fears, and doubt–well, I get that. I really do. And please remember, my door is open. I’m always available.

Table 1: Key Index Returns

Dow Jones Industrial Average -13.7 -23.2
NASDAQ Composite -10.1 -14.2
S&P 500 Index -12.5 -20.0
Russell 2000 Index -21.9 -30.9
MSCI World ex-USA* -14.6 -23.9
MSCI Emerging Markets* -15.6 -23.9
Bloomberg Barclays US

Aggregate Bond TR

-0.6 3.2

Source: Wall Street Journal,, Morningstar, MarketWatch

MTD: returns: Feb 28, 2020—Mar 31, 2020

YTD returns: Dec 31, 2019—Mar 31, 2020

*in US dollars

An important note with all the red ink in the above chart is that bonds did do their job of protecting portfolio principal, especially Treasury bonds. Many of you have checked in to make sure you were OK approaching retirement. While there were negative results for the quarter, diversification cushioned the blow and reduced losses to a level that was financially bearable. This point is important, and one that does not receive enough attention in the financial headlines.

Financial Actions to Take

Social distance yourself from COVID-19 scams

Whenever there is a natural disaster, there are always people who prey on those who want to help. Today, the disaster is a pandemic. Many are fearful, many are scared. It makes us especially vulnerable.

The FTC has warned Americans to beware of the potential scams that are proliferating. Here are some precautions to take that will keep you safer:

  • Hang up on robocalls, and don’t press any numbers. Scammers are using illegal robocalls to pitch fraudulent COVID-19 treatments and work-at-home schemes. Press a number to be removed from a list and you’ll likely get more calls.
  • Ignore online offers for vaccinations and unproven home test kits.
  • Ignore texts and emails about cash from the government. Stimulus checks will be forthcoming, but, per the FTC, anyone who tells you they can get you the money now is a scammer.
  • Please be leery of emails that claim to be from Centers for Disease Control and Prevention (CDC) or experts that claim they have information about the virus. For the most up-to-date information about coronavirus, visit the websites of the CDC or the World Health Organization (WHO).
  • On the same note, malware and phishing scams are on the uptick. Legitimate companies will never ask you to verify passwords or usernames via an email. Fraudsters will.
  • Do you see misspelled words or grammatical mistakes? That’s a sure sign that the official-looking email originated from a suspicious source.

Here’s a warning from the Securities and Exchange Commission (SEC) that was updated on March 30:

Fraudsters often use the latest news developments to lure investors into scams. We have become aware of a number of Internet promotions claiming that the products or services of publicly traded companies can prevent, detect, or cure coronavirus, and that the stock of these companies will dramatically increase in value as a result.

Please be aware of the substantial potential for fraud at this time.

Please be careful. We are living in uncertain times. While I am confident this will pass, uncertainty breeds fear, and there are criminals all over the world ready to cash in on your fear.

How to spend your stimulus check

Four in 10 adults say they would struggle to come up with $400 in an emergency, according to the Federal Reserve’s annual check-in on Americans’ financial health. Well, most are about to get at least $1,200 after passage of the stimulus bill designed to ease the economic downturn that is occurring. Throw in $500 per child and a family of four nets $3,400.

Are you eligible? For singles, $1,200 is phased out between $75,000 and $99,000 in adjusted gross income. For married folks, the range is $150,000 to $198,000.

So, how might you spend your windfall? Here are some options.

Do you need a rainy-day fund? Do you have three to six months of emergency cash, just in case? If not, consider putting your check into savings. If you don’t expect to be furloughed, an emergency fund is one way to go.

If you have at least six months in savings, look at debts, especially high-rate credit cards. That will provide you with an immediate return.

But I would be cautious about putting your cash into student loans. Borrowers are receiving relief from the government. So you may want to hold off paying down student debt, at least for now.

Are you in a strong financial position? Did you have stocks in an IRA? A conversion to a Roth may be more attractive after a market decline, although you will need to check figures since things have rebounded.

Can you give it away? Are you in a position to help others? After seeing the long lines at food banks, I felt compelled to double my annual giving to the local food pantry. There’s not much I can do to help during corona virus, but it is something.

You could gift the check to your parents, your children, or those who are in a difficult place. When businesses reopen, consider generously tipping your server who has been out of work. Even something as simple as a lavish tip to the delivery person can generate tremendous goodwill.

When we take our eyes off ourselves, the blessings we give away rebound in our direction.

Closing Thoughts

Speaking of blessings, I count the ones I have every day during a time like this. Good health is priceless, my family is all OK, we are able to shelter in place in reasonable comfort, and last but not least, I am able to work from home. My clients are also OK, and we can work together to get through a time such as this.

Thanks to each and every one of you. Please reach out at any time.