Why is the stock market doing so well when the economy is not?
Short Youtube recap here: https://youtu.be/QubNZjHHN04
With headlines about skyrocketing unemployment and an impending recession, how has the stock market rebounded so quickly? Despite the historic drops in March, the S&P 500 is only hovering in a range 10-15% from its overall highs. While the stock market and the economy are influenced by each other, there are key differences that emerge during market extremes.
We have all heard the negative news surrounding the economy. It seems to be one of the only topics that news channels talk about. GDP declined 5% in the first quarter and is expected to decline by 20-30% in the second quarter. Unemployment has shot up at a historic pace from 5% to 15% in just a few short months. However, the Federal Reserve and the CARES Act have helped keep people and companies on their feet.
The stock market went through record-setting drops back in March but since then it has bounced in the 35-40% range off the lows. We are still nowhere near the all-time highs that preceded those March declines, but the S&P 500 continues to rise and has been trading in a range 10-15% below it's all time highs reach in February. This creates confusion for most in the face of terrible economic headlines. One reason is that companies and investors are constantly looking at what is to come. They aren’t making decisions based just on the next 6 months, instead, they are projecting the growth over the next 5-10 years. It’s also important to remember that for every distressed seller there is a buyer. Investors are considering their bets for the future and if they anticipate we've seen the worst, then better than expected potential outcomes can drive stocks higher.
Historically, the stock market tends to make a recovery before the economy. For example in 2009 the stock market hit its bottom in March, but the country continued in its recession until the second half of that year. World War II is another example. The stock market was up every year during that period, despite all the turmoil going on in the world and the restrictions that were put in place by the war.
Well, unfortunately, we don’t have a crystal ball. But there are plenty of opinions you can find from watching the headlines or talking to your neighbors. This type of information can be detrimental not only to your mental state but also to your pocketbook. Allowing your emotions to take the investing wheel, can leave you second-guessing your investment strategy. In fact, the next time you want to look at your investment statements, we'd suggest opening your financial plan instead. You’re better off focusing on what you can control, like your risk tolerance, your rate of saving and spending, and your tax situation. Evaluating how your personal economy has changed, can leave you better positioned for the long-term. This allows you to have the appropriate investment allocations, so your worry can be abated, no matter how wild the stock market or economy gets in the short-run.
Today we're taking a deep dive to explore the retirement changes within this landmark piece of legislation. On this episode, you’ll learn what CRD’s are, who are qualified individuals, and how to note CARES Act withdrawals on your tax return. Join us to hear about financial opportunities that you may not have considered.
Short Youtube video recap: https://youtu.be/2QjSpi3op_U
The CARES Act was recently passed to help Americans get through this difficult time that has been filled with job losses, furloughs, lay-offs, and the mandatory closing of workplaces. The goal of the new law was to make it easier for citizens to access their money during these stresses. The CARES Act makes retirement account withdraws easier and more accessible without the standard early withdrawal penalties.
Coronavirus related distributions or CRD’s allow for qualified individuals to take up to $100,000 from their retirement accounts during the period of January 2020 to January 2021. This withdrawal for qualified individuals is taxable but you can pay the taxes on these withdrawals over a period of 3 years. It’s easy to remember what the CRD’s offer by thinking of the 3 R’s.
The CRD’s are only available to qualified individuals, but who exactly can qualify for these withdrawals? You can qualify if you or your spouse has been diagnosed with COVID-19 or if you have experienced a loss of income during this time. You may have experienced a job loss, a reduction of hours, or an inability to work due to lack of child care. If you do qualify for a CRD you’ll want to examine all of your options before you make this choice. Make sure to work with a professional to see if this is the best choice for you.
The government doesn’t want to force you to sell your stocks at lower prices, so for 2020 RMD’s will not be required for anyone. If you have already taken your RMD for the year you can even pay it back. Listen in to learn how. Instead of taking your RMD, you may want to consider doing a Roth conversion.