Author: Chad Odell

3rd Quarter 2020 Market Commentary

Note: This market review was published on July 15th, 2020 and may not be reflective of current market or investing issues.

The first half of 2020 brought volatility back to the markets that has not been seen in a decade.  Not only did we see the fastest 30% decline in the history of the U.S. equity markets, but in the second quarter, markets staged a nearly equal rally.  As of the end of the second quarter the NASDAQ had reached an all-time high, the S&P 500 came within less than 5%1 of reaching its all time high, and the Dow Jones Industrial Average came within 8% of its all-time high2.  This rally was led by technology stocks and those that facilitate the movement toward a work from home culture in the United States.

The equity market rally in the United States has been faster and stronger than seen in other markets around the world, and has also happened while the economy has suffered some of the worst performance in decades.  Unemployment skyrocketed from less than 5% to more than 14%3, the Gross Domestic Product (GDP) of the United States is expected to decrease by more than 35% in the second quarter4, more than 8.5% of homeowners are currently not making their mortgage payments5.  The U.S. stock market seems to be almost completely disconnected from the real economy.

If the stock market really is so disconnected from the real economy, then what is fueling the markets strength? There are a few things that are going on that are supporting markets. First, is the amount of stimulus being provided by the Federal Reserve Bank (the Fed) and the Federal Government.  Second, the amount of COVID-19 cases may be rising, but the death rate in the U.S. has continued to fall.  Finally, there have been many announcements by pharmaceutical companies like Moderna, Novavax, and Pfizer around treatments and/or vaccines for the Coronavirus.

The stimulus from the Fed and from the Federal Government is already at levels that we have never seen before.  They have taken their overnight lending rate to 0%, as they did during the Great Financial Crisis in 2008, but they have also increased their Quantitative Easing program to include both investment grade and non-investment grade corporate debt.  They have bought billions of dollars of U.S. Treasuries, mortgage-backed securities, and corporate bonds in only a few months’ time.

As states began to reopen from their lockdowns throughout the second quarter of the year, we have started to see a dramatic rise in new cases of COVID-19.  While this is a concerning statistic, there is a silver lining that has helped the sentiment in the stock market, and that is that the fatality rate has continued to decline.  The first few weeks of July will be critical for this, as the number of deaths do tend to lag the number of cases.  If we do not begin to see an increase in the fatality rate, we can expect the trend to continue.

The news that has continued to have the largest effect on the U.S. market is optimism around a vaccine or treatment that is effective against COVID-19.  There are currently multiple companies that are researching a vaccine, and research has shown that Remdesivir (a drug made by Gilead) decreases the severity of the disease and the length of a patient’s hospital stay.  This is important as one of the biggest concerns about this pandemic was that hospital systems may be over-run.  The faster that patients can recover and be released from the hospital, the faster a bed and supplies can be open for another that needs them.

While there has been a lot of good news lately, it is important to remember that there is a lot that we still do not know about this virus and that we will likely not know for months to come.  The fatality rate has come down, viable treatments have been found to decrease the length and effects of the disease, and the economy is beginning to re-open and show signs of life.  We have a long way to go, but for now it looks like the worst may be behind us.

Sincerely,

Longview Financial Advisors, Inc.

1: https://www.cnbc.com/quotes/?symbol=.SPX

2: https://www.cnbc.com/quotes/?symbol=.DJI

3: “Civilian Unemployment Rate,” U.S. Bureau of Labor Statistics, June 2020, accessed July 02, 2020, https://www.bls.gov/charts/employment-situation/civilian-unemployment-rate.html

4: “GDPNow,” Federal Reserve Bank of Atlanta, July 02, 2020, accessed July 02, 2020, https://www.frbatlanta.org/cqer/research/gdpnow

5: Adam DeSanctis, “Share of Mortgage Loans in Forbearance Increases to 8.55%: Mortgage Bankers Association,” MBA, June 16, 2020, accessed July 02, 2020, https://www.mba.org/2020-press-releases/june/share-of-mortgage-loans-in-forbearance-increases-to-855

Disclosure: Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by  Longview Financial Advisors, Inc.), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Longview Financial Advisors, Inc. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Longview Financial Advisors, Inc. is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the Longview Financial Advisors, Inc.’s current written disclosure statement discussing our advisory services and fees is available upon request.

2nd Quarter 2020 Market Commentary

Note: This market review was published on April 8th, 2020 and may not be reflective of current market or investing issues.

2020 started off with a continuation of the longest bull market in history, but it didn’t last long into the new year.  The major U.S. Indices hit their final high of the bull market on February 18th, 2020, and it was quickly downhill from there.  It took slightly more than a month for the S&P 500 to reach its recent low of 2,191.86, a decline of more than 35%.1  This included the fastest 20% decline in its history, multiple days of futures trading being stopped at their maximum loss and gain, multiple tests of the market “circuit breakers” that pause trading for 15 minutes when the index falls by 7%, and some of the best and worst single days in the history of the market.  The first quarter of 2020 was truly one for the history books.

We are living through a time that will be talked about for generations.  We are in a health crisis the likes of which have not been seen for more than 100 years, and it is having drastic effects on the economy.  A new virus that currently has no cure, no vaccine to prevent, and no heard immunity; it is truly a perfect storm.  This virus has lead governments across the globe to take measures that only months ago we would have likely considered unthinkable.  Global supply chains have been shut down, countries have banned travel, thousands of businesses in the United States have been forced to close, and millions of Americans have already lost their jobs.  Unfortunately, this is only the beginning, and it is likely to get worse before it gets better.

The Federal Reserve has thrown everything it has at the markets in order to try and dampen the long-term effects of this crisis.  They cut rates by 1.50%, all the way to 0%, and all of the cuts were made during emergency meetings.  In addition to rate cuts they also announced multiple assets purchase programs which include buying treasury bonds, mortgage backed securities, municipal bonds, and for the first time in history, investment grade corporate bonds.  The Fed is not alone.  The federal government has also passed a massive stimulus bill of more than $2 trillion, which includes direct payments to American tax payers.

To add to the uncertainty, there was also stress on the global energy markets.  At their latest meeting, the Organization of the Petroleum Exporting Countries failed to come to an agreement with Russia on production cuts.  This led to an oil price war, with Saudi Arabia increasing production to their maximum capacity and dropping prices.  The price of oil has seen a dramatic drop since that meeting falling to a low of below $20.  This has put significant stress on U.S. energy companies which require a price much higher in order to produce a profit on their oil drilling operations. 

With all of the uncertainty surrounding the COVID-19 outbreak and the oil price war it is difficult to understand the effects that will be seen in the economy and the financial markets, both short and long term.  With that said, volatility is likely to remain high over the coming months while investors digest economic data, company earnings, and continued economic shutdowns.  It is also probable that some small businesses that have been forced to close will not be able to reopen and some of those that have lost their jobs will not see those jobs return.  The one thing that is certain is that this crisis is going to have real and lasting effects on our economy and on our population. 

We wish all of our clients, friends, and family health and safety during these uncertain times.

Disclosure: Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by  Longview Financial Advisors, Inc.), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Longview Financial Advisors, Inc. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Longview Financial Advisors, Inc. is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the Longview Financial Advisors, Inc.’s current written disclosure statement discussing our advisory services and fees is available upon request.

1st Quarter 2020 Market Commentary

Note: This market review was published on January 14th, 2020 and may not be reflective of current market or investing issues.

In contrast to major lows at year end 2018, the end of 2019 saw major U.S. indices at or near record highs. The fourth quarter saw much lower volatility than the middle of the year as the markets continued mostly higher with only a few minor pullbacks along the way. Many of the risks that were influencing markets throughout the year are still relevant today; however, most of them have shown signs of moving toward a resolution.  There have been more negotiations in the U.S.-China trade war, and they are finally showing signs of progress, tensions in the Middle East seemed to have peaked for now, and the latest deadline for Brexit is less than a month away.

In their fourth quarter meeting, the U.S. Federal Reserve stopped the interest rate easing cycle, for now, and left their benchmark rate alone following three consecutive cuts during the year. The future path for the Fed is still in question however.  Chairman Powell has said that the three cuts during the year were simply a mid-cycle correction to interest rates and do not point to a long-term easing cycle.  Although the Fed has stopped their interest rate cuts for now, they have been forced to continue to increase their balance sheet through an asset purchase program in order to continue to provide liquidity to overnight lending markets.  While it continues to be talked about as a short-term issue, there has been continuous intervention through the fourth quarter and plans to halt the asset purchases have continued to be delayed.

The trade war between the U.S. and China is finally starting to show progress and talks are finally starting to look like they could bring results over the coming months.  The first phase of the deal has been verbally agreed to and is expected to be signed in mid-January.  While many details of the first phase have not been shared publicly, it is expected to include China increasing purchases of U.S. agricultural products and increasing intellectual property protections, while the US is likely to end any tariff increase. That said, phase two of a long-term deal could be years away.

Geopolitical tensions continue to be a threat. Protests in Hong Kong have continued throughout the past few months, despite the government removing the controversial extradition bill that provided the initial spark for the protesters.  While the first of the protester’s five major demands has been met, in the removal of the bill, the remaining four have seen little interest from the government. In the Middle East, following U.S. airstrikes on Iranian-backed rebels, protesters occupied the Green Zone in Iraq and were able to break into the compound surrounding the U.S. Embassy.  While the situation de-escalated after a few days, the United States then killed Iranian General Qassem Soleimani, to which the Iranian military responded by launching rockets at bases in Iraq that house American troops.  While there were no casualties reported in the attack, it showed that Iran is willing to use military force if they deem it necessary. This has been reported as the end of the retaliation from Iran and both sides seem to be standing down, for now. Over the next few months global growth could begin to rebound off of recent lows due to the stimulus that has been provided over the past year.  This growth will likely be supportive of risk assets over the next quarter, with international markets expecting out-performance relative to the United States as the dollar begins to weaken. While a recession in the United States continues to be a threat, one is not expected during the first three to six months of 2020 unless there is a significant unforeseen event.

Disclosure: Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by  Longview Financial Advisors, Inc.), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Longview Financial Advisors, Inc. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Longview Financial Advisors, Inc. is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the Longview Financial Advisors, Inc.’s current written disclosure statement discussing our advisory services and fees is available upon request.



4th Quarter 2019 Market Commentary

Note: This market review was published on October 16th, 2019 and may not be reflective of current market or investing issues.

The third quarter of 2019 was a wild ride for U.S. Markets.  The S&P 500 hit a new all-time high of 3,027.98 in July only to sell off more than 6.5% by early August. Many of the risks that were influencing markets in the second quarter are still relevant today.  There has been little progress made in the trade war between the United States and China, tensions in the Middle East have continued to escalate, and the latest deadline for Brexit is less than a month away.

During the third quarter, the Federal Reserve followed through on their dovish commentary by cutting their benchmark rate by 0.25% in July and September. The future path for the Fed is still in question however.  Chairman Powell continues to say that these rate cuts are not part of a cyclical change, rather a mid-cycle correction, meaning that he would prefer not to continue to cut rates in the future.  In addition to rate cuts, the Fed also had to intervene in over-night lending markets in order to provide liquidity as there have been multiple spikes in the overnight rate due to a lack of dollar liquidity.  If the dollar liquidity issue continues, and the Fed is unable to provide sufficient capital through their current repo operations, a new quantitative easing (QE) cycle might begin.

The trade war between the U.S. and China has seen little progress with increased tariffs from both sides.  Tensions have come down over the last few weeks as a potential deal has been tentatively reached.  The deal is said to be implemented in phases with the first phase being China purchasing more American agricultural products, primarily soy beans, and the United States agreeing to stop increasing tariffs.  No tariffs have been removed at this point; however, pending the first phase of the trade deal, some tariffs have been delayed from the third quarter to the end of the fourth quarter after the holiday shopping season.

Tensions in the Middle East continue to be a significant threat, especially to the oil market.  Oil had its largest one day move in history in September following an attack on the largest oil refinery in the world, located in Saudi Arabia. The United States has blamed Iran for the attacks, which has continued to degrade relations between the two nations.  While there has not yet been a response to the attack, it is unlikely that tensions will subside anytime soon.

Over the next few months it is likely that central banks around the world will continue stimulus both by cutting rates and by resuming, or increasing, QE. Earnings for U.S. companies are likely to disappoint when they report third quarter results, which could lead to a short-term consolidation in equity markets.  As central banks continue to provide stimulus, we will likely see equity markets pick up later in the fourth quarter or early in 2020, although a global recession continues to be a viable threat.

Disclosure: Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by  Longview Financial Advisors, Inc.), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Longview Financial Advisors, Inc. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Longview Financial Advisors, Inc. is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the Longview Financial Advisors, Inc.’s current written disclosure statement discussing our advisory services and fees is available upon request.

2nd Quarter 2019 Market Commentary

Note: This market review was published on July 18th, 2019 and may not be reflective of current market or investing issues.

U.S. Markets ended the second quarter near fresh all-time highs, but the path taken to get there was far from smooth.  We saw the return of volatility to its highest levels since the major sell-off in December 2018 with the volatility index nearly doubling to over 20 in the first half of May before slowly returning to the lower teens by the end of the quarter.1  This volatility was influenced by multiple factors, including the continued trade war between the United States and China (the two largest economies in the world), the increasing tensions in the Middle East (with Iran saying that there is no longer a path to a diplomatic solution with the United States), and the Federal Reserve’s lack of clarity on their future policy. 

The Federal Reserve has continued to hint that a rate cut is coming, but we still lack clarity on when the first one will be and how much it will be cut.  The market is currently assuming a rate cut of at least 0.25% and as much as 0.50% in July.2 If there is no cut in July, it could bring a short-term consolidation to equity markets in the U.S. as investors wait to find out what the Fed’s outlook on the economy means for risk assets.

The trade war between the U.S. and China saw talks break down in the early part of last quarter with increased tariffs from both sides.  Tensions cooled slightly after President Trump and President Xi met at the G20 summit in June and agreed to restart trade negotiations between the countries and to put any further tariffs on hold.  No tariffs have been removed at this point; however, trade talks have resumed and both sides say that there is a path to a deal.

Tensions in the Middle East continue to be a significant threat, especially to the oil market.  In the last three months there have been attacks on oil tankers in the Strait of Hormuz, for which Iran has denied responsibility. Also, a U.S. drone was shot down, for which Iran claimed responsibility stating that the drone had illegally entered Iranian airspace.  Tensions in this region continue to rise with Iran saying there is no longer a path to a diplomatic solution with the United States. These tensions arose after the U.S. decided to reimpose sanctions on Iran that had been removed as part of the nuclear agreement between Iran and the international community.

While new all-time highs are being reached in U.S. stock markets, global stocks have not fared as well since the last recession.  The MSCI EAFE index (a broad measure of international equity) reached its most recent peak in early 2018, but has yet to return to the all-time highs that were seen in 2007.3 Economies outside of the U.S. have not had the same success throughout the recovery since the Great Recession and their stock markets reflect that.

Over the next few months it is likely that China will increase government stimulation in their economy in order to combat declining growth. The European Central Bank (ECB) will likely continue their policy of easy money and could possibly increase stimulus. The Federal Reserve will likely cut rates by at least 0.25% over the next three months which will confirm their change in policy from the last rate hike in December 2018.  All of these factors could be supportive of global economic growth which should be positive for global equities. 

Sincerely,

Longview Financial Advisors, Inc.

1, 2, and 3: Information found at CNBC.com

Disclosure: Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by  Longview Financial Advisors, Inc.), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Longview Financial Advisors, Inc. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Longview Financial Advisors, Inc. is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the Longview Financial Advisors, Inc.’s current written disclosure statement discussing our advisory services and fees is available upon request.


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