It was another whirlwind of a week in the markets. We anticipate this will continue to be the case until the number of confirmed coronavirus patients peak. I’ve seen contradictory reports suggesting this could be as soon as mid-April, although depending on its spread, some believe it could be longer. Considering the current situation, we’ve taken the safe approach of raising cash in accounts given the heightened level of uncertainty. We recognize that times like these are unsettling and want you to know that we are working hard to minimize risk, but also to position your accounts for the inevitable recovery.
Just as we are working hard to mitigate the downside, so too are both the Federal Reserve and Congress. Today Congress passed the CARES Act which provides $2 trillion in emergency fiscal stimulus. The most notable provision in the bill is the direct payments to taxpayers. Specifically, individuals who had up to $75,000 in adjusted gross income in 2019 will receive a one-time payment of $1,200, while married couples with AGI up to $150,000 will get $2,400. Additionally, taxpayers will receive an additional $500 for each qualified child, while individuals and families with income above their respective thresholds will see their relief payments reduced by $50 for every $1,000 in AGI. The checks are expected to go out in about three weeks.
From the retirement perspective, the CARE act eliminates the 10% early withdrawal penalty on distributions from retirement accounts for “coronavirus-related distributions”, the suspension of required minimum distributions in 2020 (as well as the ability to return current-year distributions), and an increase of $600 per week for unemployment benefits for up to four months. For small businesses (defined as those with less than 500 employees), the plan allows for loans up to $10 million (depending on payroll costs and other factors) which would be eligible for forgiveness if used to cover payroll and other expenses like rent and utilities. The president is expected to sign the bill as soon as tonight.
As for the Federal Reserve, it has been working overtime to keep the financial markets liquid. The Fed’s balance sheet exploded by more than half a trillion dollars over the past week, roughly twice the pace of the next-largest weekly expansion during the global financial crisis. Total assets held by the central bank topped $5 trillion for the first time as it attempts to keep credit flowing to all corners of the market, including Treasury's, commercial paper, and municipal bonds. Jerome Powell said yesterday, there is essentially no limit to the Fed’s emergency lending ability.
There is so much news, it is hard to determine what is important, what is worthwhile, and what is unnecessary. I could go on for pages, but I know this email is not the venue for those discussions. If these times make you uneasy, just know that we are here for you. Please reach out to your relationship manager.
In closing, I want to share a story that, while obvious, can’t be understated. Know what you're buying. The SEC suspended trading in the largely defunct Zoom Technologies (ZOOM), a distributor of wireless products, after widespread confusion with popular videoconferencing company Zoom Video Communications (ZM), which has seen a sharp rise in usage and stock price amid the pandemic. Over the past three months, Zoom Video Communications has risen 109%, while Zoom Technologies went from $1.26 to an intraday high of $60 last Friday. I think some people are in for a big surprise when they discover they don’t own what they think they own. Now you know.
Bruce J. Mason, MBA