We were hoping for a slow week, so much for that!
An upcoming date to pay attention to is the current tax filing deadline of July 15th, 2020. Individuals have until the tax deadline to:
File their 2019 taxes (or file an extension to file in October)
- Make contributions to their individual IRA- either Roth or Traditional.
- Please reach out if you have questions or need guidance on the new tax deadline or making a contribution to your IRA(s) before the deadline. We are happy to discuss with you if you need advice deciding what is best for you.
The economy is heading in one direction and the coronavirus is heading in the other direction. As we begin this newsletter, over 25 states are experiencing significant increases in new cases as we see photos and news reports on our economy reopening. There is no doubt that the economy is reopening and that it is close to inevitable that we would see a rise in cases as a result. The stock market reacted favorably, at least during the first two days of the week.
The quarter is nearing an end and in July, 2nd quarter earnings will be reported. This is a bit wonky, but this is how we are thinking. Earnings for the 2nd quarter S&P 500 are predicted to be 43% lower. If, in fact, this is accurate this would be the largest earnings decline since Quarter 4 of 2008. Many companies have suspended earnings guidance going forward. The earnings estimate through the end of 2020 are all negative. Forward earnings estimates have a wide range because of lack of visibility. The S&P 500 is at its current level of 3050 points and estimates range from $120-$140/share. Therefore, forward price earnings ratios range from 21-25 while historically the range is between 10 and 20.
A more accurate indicator of fair value is the trailing 12 month price earnings (PE) ratio because forward guestimates are highly inaccurate. The current 12 month trailing price earnings ratio is 21 times earnings. Trailing 12 month PE ratio is more accurate but has the same range as forward P/E so you can see we are on the high end of this particular ratio meaning stocks are expensive.
Our basic analysis is that this is not a time to sell and to only buy on declines. On the other hand, timing buying and selling in the stock market doesn’t work very well. All our clients are participating in the stock market advances and declines because all our client’s own stock. This is a time to remain cautious.
Interest rates remain unchanged at historically low levels. Municipal bonds still offer a premium yield to the equivalent US Treasuries. Mortgage rates might head lower going forward as the CARES act benefits expire because forbearance will decrease allowing mortgage rates to settle at their historical spread to 10 year US Treasuries.
The head spinning certainly has not stopped.Make sure to take time to care of yourself. Make sure to let us know if you need or want a virtual consultation/meeting with us. We are focused on moving forward and know that this too shall pass.
The SAS Team