A New Year, a New Crisis and Some Good Things, Too

In case you didn’t notice, 2019 was a year to remember for financial markets.

After the poor market performance in the fourth quarter of 2018, it was definitely not expected. This year also started well, until the Coronavirus struck. It is a stark reminder that, although most economic indicators we see in the financial news each day continue to be very good, we cannot yet (or in my opinion ever) declare that there is no risk out there and the markets will continue to rise indefinitely. We are not a medical practice, so we can only offer our thoughts on the possible economic considerations of this latest world crisis and a recap of the many interesting new economic issues.

China makes a lot of stuff

The spread of coronavirus has been much quicker than that of SARS; at this point the death toll in the world is over 1,350 persons. There are around 60,000 active cases. There will likely be more. This is the terrible human cost. Let’s hope it ends soon.

There are many theories regarding how the disruption of the flow of manufactured products from China will affect the world economy. I have seen ranges from 2-5% of a decrease in global growth. Does anybody really know? Corporate profits and free cash flow will no doubt be impacted, and of course the demand for oil is already down. Supply chains for goods in the U.S. and Europe are only beginning to feel the impact. However, to me the most important financial question in this regard is: How long will the impact of this last?

You may remember many of the former end of the world pandemics, like avian flu, swine flu, mad cow, SARS, etc. Well, we came back from these rather quickly. All we can hope for is that a vaccine is quickly discovered AND quickly produced. I don’t think that this is anything from which we cannot recover. If it is the end of the world, then don’t worry about your money.

USMCA done, China deal phase one, wages rising, unemployment low, and the SECURE Act

Much of the tension of the trade skirmishes has abated now thanks to Congress (finally) passing USMCA, and the phase one China deal has been done. Labor unions and business leaders both praised this due to the benefits it provides for the sale of our goods and the “made in America” obligations attached to the USMCA. Perhaps more importantly, wages for the bottom third of the workforce have been rising faster than those of the top third. For the U.S. economy, this means that more people have more money to spend and they are spending it even though the savings rate has been good, too. With low overall unemployment and record low unemployment for the African American, Hispanic, and Asian communities combined with more women employed in the workforce than men for the first time, we would expect these wages to continue to rise.

We have already sent out an email regarding the changes to retirement plans and other savings vehicles through the SECURE Act and there is additional information in this newsletter. If you would like to discuss this further, please call our offices. These changes offer many planning opportunities for our clients.

by Ronald Donato, Jr., CFP®, MBA
Director of Financial Services