Volume 3 , Issue 3 |Third Quarter 2020 MID-YEAR PERSPECTIVES CONTENTS | Message from Our President | Market Insight | Mid-Year Is a Good Time to Fine-Tune Your Finances | How Long Should You Keep Financial Records? | IMA’s 2019 Community Report | Associate Spotlight | This Day in Stock Market History MESSAGE FROM OUR PRESIDENT Dear Valued Clients, We are halfway through 2020 and it has been quite investment. Even if someone is nearing retirement, it a ride. As I write this message, I am wondering if this is important to think in terms of their life expectancy, is our “new normal”. Despite the many unexpected not just their retirement date. Historically, the U.S. stock adjustments we have made this year, our steadfast market has been dynamic and resilient in moving on commitment to our clients has not wavered. Like many from crisis after crisis. The recent market volatility should of you, our associates have been working remotely bring into sharper focus what we have always said: Be since early in the year. Our hope is that the level of mindful of the current situation but don’t abandon service has felt the same. your long-term investment strategy and goals. Investors should act in their own best interests, while the stock As a wealth management and retirement plan market reacts to the current coronavirus pandemic and consulting firm, we are working with many clients the uncertainty it brings. Sometimes staying the course impacted by COVID-19 (the coronavirus). Our thoughts (doing nothing) is the best course of action. go out to those impacted personally by the virus and to our communities at large as they deal with the Even though the world is full of uncertainty, we will get pandemic. The wellbeing of our employees, clients, through this together. Strong, lasting relationships are plan participants, partners and communities are of forged through difficult times and we plan to continue utmost importance to us. building our relationships with all of you. As always, we appreciate your business and ongoing trust. We recognize these are challenging times for our economy, our country, and our clients. In 21 years I wish you and yours the very best. of business, IMA Wealth (formerly TrueNorth) has Stay strong and be safe. managed through three bear markets, the dot-com bubble of 2000-2002, the global financial crisis of 2007- 2008 and now, a pandemic. We have always kept an eye toward the future, which enables us to manage through times like these and continue to be here – through, and after, the disruption – for our employees, clients, and communities. The key word in a time like this is patience. On a conference call recently the comment “panic is not an investment strategy” was used. At IMA Wealth, we believe this is true. Our primary message for clients is to remember a strong financial plan is a long-term RICHARD HOLT, CFA®, PRESIDENT, CHIEF INVESTMENT OFFICER 2 IMA WEALTH - THE FIDUCIARY MARKET INSIGHTS BY JUSTIN KITTLE, CFA, CFP®, CAIA®, AND IMA WEALTH VP & PORTFOLIO MANAGER “Uncertainty actually is the friend of the buyer of long-term values.” Warren Buffett said this in 1979, and nearly 40 years later this will be put to the test. Uncertainty in both the economy and financial markets is prevalent, and the Federal Reserve (“Fed”) has been very clear about this—in fact, the word uncertainty showed up 21 times in the Federal Reserve Beige Book1. Nonfarm payrolls increased over 2.5 million in June, pushing the unemployment rate down to 11.1%. A combination of the virus, the economic contraction, oil price collapse, and government policy response has made “UNCERTAINTY ACTUALLY IS THE FRIEND OF THE forecasting impossible in the current BUYER OF LONG-TERM VALUES.” environment and creating an outlook WARREN BUFFETT for the 2nd half of 2020 is challenging. EQUITY MARKETS Equity markets rallied nearly 40% from has rebounded dramatically, there is still an abundance the March 23rd lows. Despite millions of of pessimism. Money market funds ballooned to job losses and an unprecedented drop in economic nearly $5 trillion, representing an almost 30% increase. activity, April was the best month for the S&P 500 since This surpasses the peak of the 2008 Global Financial 1987, and in June, the market briefly turned positive for Crisis2. Money markets aren’t the only sign that investors the year. In the face of multiple “worst-ever” economic are afraid—bank deposits have also spiked. This cash indicators, US equity and credit markets rallied back to pile will help support the markets as a “buy the dip” near pre-pandemic levels. The market rebound caught mentality returns. The market is still at risk of pulling most by surprise and the divergence between the back on negative news, but the extraordinary amount perceived economic landscape and the stock market of cash on the sidelines should provide support leaves us with mixed signals. Even though the market during pullbacks. IMA WEALTH - THE FIDUCIARY 3 FIXED INCOME MARKETS Fixed income markets have been almost every year (due to an expanding economy and challenging for investors with interest rates inflation) finally declining to about 35% of GDP by at historic lows. The interest rate landscape has changed 1975. We find ourselves in a similar situation, except dramatically from the beginning of the year. In the US, instead of WWII, we have COVID-19. Yield curve control the short end of the yield curve remains near zero and seems increasingly likely as we continue to increase our this is likely going to be the case for the foreseeable deficit throughout the year and target higher inflation. future. For rates to rise, there would need to be a surge Whether it be artificially done by the Federal Reserve in inflation expectations, which seems highly unlikely or naturally by a weak economy, prepare for near zero for now. If rates do start to rise in any meaningful way, interest rates for the foreseeable future. the Fed will likely intervene with additional purchases Progress toward reopening the economy has spurred to keep rates low. Capping treasury yields, also known some optimism worth noting: as yield curve control, is another tool the Fed can use. • Fiscal and monetary stimulus likely to continue The Federal government deficit has skyrocketed, and total debt outstanding is expected to be 130% of Gross • Cautious investor positioning with high cash Domestic Product (“GDP”) by the end of 2020. The positions only other time in history we’ve witnessed this was • Promising research of potential treatments for during World War II when gross Federal debt reached COVID-19 121% of GDP. During this time yield curve control was • Improving economic indicators such as weekly implemented, interest rates were capped, and they let jobless claims inflation run up to 10%, thus inflating away the debt as a percentage of GDP. During the WWII era, when the debt While this is encouraging, the sustainability of the ratio exceeded 100%, inflation was used as a tool to recovery relies on infection rates, public health policy, cut the debt ratio nearly in half, and over the following and the development of therapies and vaccines. few decades, debt as a percentage of GDP decreased CONCLUDING THOUGHTS As we noted in our first quarter market will all be favorable for equities going forward commentary, the COVID-19 recession and and we remain cautiously optimistic about the recovery will likely be short and dissimilar to recent economic recovery underway. The world looks historical recessions. This is not an endogenous shock very different today than it did 2 months ago and triggered by large imbalances like the technology will likely look very different in 2 months when collapse in 2001 and the housing crash in 2008. second quarter data is released. Virus headlines are The US Government’s support to help address the changing every day and the Presidential elections COVID-19 crisis has been sizable and decisive and are beginning to be front and center. Uncertainty is unlikely to end anytime soon. Near zero interest will undoubtedly remain high for the remainder of rates, increasing money supply, conservative investor the year. positioning, and a rebound in corporate earnings Source: 1 The Beige Book is a summary of commentary on current economic conditions by the Federal Reserve district. The July 15, 2020 Beige Book can be located here: https://www.federalreserve.gov/monetarypolicy/beigebook202007.htm. 2 The financial crisis of 2008, also known as the global financial crisis (GFC), was a severe worldwide financial crisis. Excessive risk-taking by banks combined with a downturn in the subprime lending market in the United States culminated with the bankruptcy of Lehman Brothers on September 15, 2008 and an international banking crisis. IMA WEALTH - THE FIDUCIARY 4 MID-YEAR IS A GOOD TIME TO FINE-TUNE YOUR FINANCES The first part of 2020 was rocky, but there should be better days ahead. Taking a close look at your finances may give you the foundation you need to begin moving forward. Mid-year is an ideal time to do so, because the planning opportunities are potentially greater than if you waited until the end of the year. RENEW YOUR RESOLUTIONS At the beginning of the year, you may have vowed then, you may need to rethink your priorities. While to change your financial situation, perhaps by saving it may be difficult to look at your finances during more, spending less, or reducing your debt. Are these turbulent times, review financial statements and resolutions still important to you? If your income, account balances to determine whether you need to expenses, and life circumstances have changed since make any changes to keep your financial plan on track.