Blog


April

Can the economy be saved?

It has been stated for the past month that closing down the US economy was the right thing to do.  Nobody knew how the Corona-virus would spread or how many people it would affect.  As we all adjusted our lives to this new way of living, we are now asking the question on when should the economy open back up?  It seems that everybody has an opinion on this and nobody knows who is right.  Georgia and South Carolina are the first to open up their economies with another group not far behind.  We see States grouping together because they want to have a fair and safe reopening.  Imagine if Indiana were to open up business in their state and Ohio stays closed for an extra month.  Not only will Indiana companies gain a lot of business from Ohio, Ohio will lose business and may never get it back.  State’s have to be cognizant of this fact and at the same time be careful not to open up too early and face a second wave of the virus. 04.29.20

Income Tax Changes

There have been a variety of changes to the income tax scene over the last few weeks: 2020 RMDs waived, 2019 tax payments extended, and a $300 above-the-line charitable deduction just to name a few!

Andy Young, our in-house CPA and CFP®, hits the highlights in our latest video.

10 Risky Jobs that Pay Well

We like articles like this that think outside of the box and consider what the future will be like.  This article considers 11 items that could be extinct in the next several years because of changes to the economy due to the pandemic and also just changes to the way we do business every day.  It is pretty surprising that Touch Screens is one of the categories.  If you look around us everyday there are touch screens everywhere you go – Fast food restaurants, ATM’s, airports, rental cars and much more.  It seems that this technology has been ramping up for sometime now so companies could use less workers and save on costs.  Now they are going to have to come up with something new to be able to clean the screens after each use.  04.24.20

Economic Outlook and Stress Management

In our latest video, Melanie Colwell gives a brief economic outlook and tips for stress management during this unprecedented time. One of the best strategies? Showing gratitude.

Thank you to our clients for your trust and confidence. Thank you to the essential business workers for ensuring our basic needs are met. Thank you to the medical providers for being our front-line heroes.

Paycheck Protection Program

Another part of the CARES Act enacted the Paycheck Protection Program.

This program is offering loans to small businesses (less than 500 employees), sole-proprietors, and non-profits.

If funds are used for qualified payroll costs in the next 8 weeks, the loans can be forgiven. However, there are lot of details and caveats that Greg explains further in the below video.

Watch this video and then go talk to your bank as soon as possible!

$1,200 Rebate Checks

The Coronavirus Aid, Relief, and Economic Security Act aka “CARES Act” was signed into law on March 27, 2020.

Individuals may be entitled to $1,200 checks ($2,400 for individuals filing a joint return) and $500 for each qualifying child under age 17 if certain income requirements are met. Did you know these checks are actually designed as a credit on your 2020 Tax Return?

Our video below discusses these checks in further detail.

GFM Videos!

The world is changing, and we changing with it. Introducing the Galecki Financial Management Video Blog Series! Kevin Chandler kicks us off with a introduction of the faces you’ll be seeing in the coming days and weeks.


March

A Road Map for Recovery

The coronavirus epidemic has sent shockwaves through the American economy, as many investors already know. Still, with a little economic sense, investors should be able to maintain long term confidence in their portfolios and in the market. The United States economy was due for a recession; since 2009, the economy has rebounded to the tune of 121 consecutive months of GDP growth, a national record. With such large expansion, however, must come an eventual downfall (due to market overvaluation, inflationary output gaps, etc.). It has been nearly 11 years since the last recession in the United States. Recessions, on average, occur every 5 to 6 years.  Long story short, a recession was on the horizon. The coronavirus epidemic caused the recession through fear. Consumer expenditures, based on popular economic belief, make up approximately 70% of total economic expenditures. When consumers are faced with outside influences, such as fear imposed by a deadly virus, spending habits change, and the economy is forced to shift accordingly. In the case of the coronavirus, fear decreased consumer expenditures. People are afraid to go out in public to eat, shop, etc. With the decrease in consumer expenditure, the economy was done in. However, the bright side of the economy’s current standing is this: the cause is known. In the 2008 financial crisis, the cause was not so easily identifiable. Some economists blamed it on market overvaluation while others blamed consumer confidence and the housing market. Knowing the problem makes finding a solution infinitely easier. The FED has already moved to halt the onset of a recession; similar action from the FED took much longer in the 2008 financial crisis. Ultimately, there is no system malfunction that is causing the current economic decline. The culprit is an outside invader, a virus that will be beaten by the United States medical system. Once the virus is gone, consumer confidence will return, and the economy will surge once again.

Where does the stock market go from here?

As COVID-19 takes hold of the world, investors need only remember one thing: patience is a virtue. The stock market will rebound; it always does. And portfolios will gain back their value after the recent bear market. Michael Wilson, Morgan Stanley’s chief US equity strategist, believes that the stock market will begin to recoup value in the near future and urges people to jump into the market. With cheap prices and nowhere but up to go, the stock market is primed for a rebound. With an influx of new investors, prices could begin to rise again in the near future. For investors who have lost large percentages of their portfolio value, now is not the time to sell. Remain patient and wait until the market upticks again, and maybe even look into investing more while the COVID-19 has prices so low.

“Panic is Not an Investment Strategy”

The Bear Market is here. On Wednesday, March 11th, the DOW closed in Bear market territory. The S&P 500 is not far behind. This is defined as a decline of more than 20% from the peak. So, where do we go from here? What will happen to the economy and the market as we deal with the Coronavirus (COVID-19), an upcoming Presidential election, Brexit, and plummeting oil prices? 

The quick answer is that nobody knows for sure on any of the above. Here is what we do know. We know that economies around the globe, including the U.S. will slow due to the fears surrounding COVID-19. Fewer people will travel, dine out, attend sporting events, and in general consume. This will inevitably cause consumer spending to slow, which will impact company revenues and earnings. Oil has dropped to nearly $30 per barrel as the demand will contract as fewer people fly and drive. But for how long? 

If you cancel your spring break trip, will you not go later in the summer? If you don’t go to Lowe’s this weekend to buy a grill for the season, isn’t it probable that you will eventually buy one? Your demand and desire for traveling, a grill, and the latest tech gadget is still there, but the logistics of attaining those items has become complicated.

The initial drop in consumer demand will impact the economy in the near term. It is possible that we enter a recession in the U.S. over the next few months. It is important to remember that an average recession lasts 9 months and we have not had one for almost 11 years. They typically occur every five years, so we are overdue. 

As for the market, equities have pulled back in very quick fashion in anticipation of this economic slowdown and recession in earnings that will inherently arrive. The average contraction for the S&P 500 is around 30% leading up to an economic recession. Therefore, given the already realized 20% pullback, it is possible that a good portion of the correction has already occurred. 

If you have been to our office for a meeting in the last 4-6 months, you are aware that we have been warning clients that a pullback in the market was inevitable given valuations. In fact, we spent a lot of time in 2019 trying to reduce risk in the portfolio. We shifted to a more conservative bond allocation and we changed some of our equity allocation. So far, the changes have been effective in minimizing the downside correction that we are experiencing. We are still long-term investors and believe in ignoring the short-term market fluctuations. We don’t know what the next few weeks will bring for the markets, but we know that a diversified portfolio is the best way for clients to stay ahead of inflation, while minimizing risk, over the long-term. 

The average investor has earned a 1.9% annualized return over the last 20-years. A 60% Equity 40% Bond portfolio has earned 5.2%. The average investor makes emotional decisions leading them to buy and sell at the wrong time. Keep the focus on making sure that your investment allocation is in line with your financial plan, so that you can achieve your long-term goals. 

Liz Ann Sonders (Chief Market Strategist for Schwab) said the following in a letter this week to advisors: “Panic is not an investment strategy.” We agree and encourage remaining steadfast in your long-term strategy with a diversified portfolio. 

Galecki Financial Management Investment Committee