Market Share Newsletter Vol 2 Issue 9

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April 7, 2020

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This week brings more records for COVID-19 and for the economy. As the total number of cases continues to climb worldwide, the world is watching to see when they will peak. The large-scale efforts to slow the virus are having a ripple effect in the economy. The first wave impacted the hospitality business–hotels, travel and restaurants. Now, more retail and service industries are furloughing employees and temporarily closing. For the second week in a row we saw historic numbers of unemployment claims filed. This time, over 6.6 million Americans filed bringing the two-week total to 10 million. The unemployment rate jumped to 4.4% at the end of March. There is also a ripple effect in the way businesses are implementing safety measures for their customers and staff. Limiting the number of people allowed in stores and providing protection for staff continues to be developed and deployed.
 
The U.S. government’s passing of the Corona Aid, Relief and Economic Security (CARES) Act is the first attempt to stop or slow those effects from causing more damage to the economy. We have included highlights of the CARES Act at the end of today’s Market Share. To support the CARES Act, 1st Source has assembled a large team to handle the significant number of applications expected for the Payroll Protection Plan, which started on April 3rd. Stimulus checks to U.S. residents should start arriving by April 14th. The stock market took all this news in stride and was down 2% last week, prior to the 7% increase on Monday. The volatility in the markets the week prior to the stimulus bill also declined but it is still near historic highs.
 
We are at the beginning of what should have been a relatively good corporate earnings season but will now show the earliest effects of the economic slowdown. Announcements about the halting of share repurchases and potential dividend cuts will be important news for investors to watch. Many companies have stopped share buybacks to preserve cash and some companies have already cut their dividends, such as oil companies and European banks.
 
As it appears now, parts of the U.S. and most of the European economies will be shut down until May. Most events in May and some sporting events scheduled for June and July are being canceled. When the re-opening happens, it will likely be slower and more gradual. A strong recovery or a “V-shape” is less likely to occur as in past swift economic drops when the recoveries are just as swift as the drops (like a “V”). There will be some improvement when businesses re-open but may not be as big as many believe it will be. Many households will still be struggling with layoffs and will need more time to be able to spend, others will be more cautious to spend. We expect additional stimulus bills will be brought before Congress in the coming weeks to help municipalities, healthcare, individuals and infrastructure. These will be additional ways to slow the effect of the virus and improve the recovery.
 
Thank you for looking to us to help keep you informed.
 
Paul Gifford, CFA
Chief Investment Officer
1st Source Corporation Investment Advisors, Inc.
GiffordP@1stsource.com
Erik Clapsaddle, CFA, CFP®
Senior Fixed Income Portfolio Manager
1st Source Corporation Investment Advisors, Inc.
ClapsaddleE@1stsource.com
THE CARES ACT: Highlights
  • Recovery rebates to U.S. residents
  • IRA Required Minimum Distributions waived for 2020
  • Extended deadline for 2019 IRA contributions to July 15, 2020
  • Individuals that itemize deductions in 2020 may elect a 100% of adjusted gross income limitation (rather than 60%) for cash charitable contributions (contributions to donor-advised funds are not eligible for this enhanced deduction)
  • Penalty waived for early retirement withdrawal for affected individuals
  • Small Business Administration loans and Paycheck Protection Program for businesses
Additionally, the deadlines to FILE and PAY federal income taxes are extended to July 15, 2020.
 
Please consult your tax advisor concerning your specific situation. 
 
DISCLOSURES
The information in this email was prepared from sources believed to be reliable; it is for informational purposes only and does not provide recommendations based on the investment objectives, financial situation, or needs of any individual or entity. Past performance is no guarantee of future results. A risk of loss is involved with investments in stock markets. The information in this email is not a comprehensive statement of the matters discussed. Unless specifically indicated otherwise, this email is not an offer to sell or a solicitation of any investment products or other financial product or service or a confirmation of any transaction. If you have questions about the information in this email, please contact your trust administrator at 1st Source Bank Wealth Advisory Services or call 800 882-6935. Investment and Insurance products are:
  • Not insured by the FDIC or any Federal Government Agency
  • Not a deposit or other obligation of, or guaranteed by, the Bank or any bank affiliate
  • Subject to investment risks, including possible loss of the principal amount invested
1st Source Corporation Investment Advisors, Inc. is a wholly owned subsidiary of 1st Source Bank.