Q1 2020 and the cares act
In the world of roller coasters, it seems that engineers are always working on ways to create the most thrilling and almost gravity defying ride. When I was a kid, I vividly remember the excitement of the newest thrill ride, Viper, at Six Flags Magic Mountain. At the time it was the tallest and fastest looping roller coaster in the world. Obviously, this post isn’t about roller coasters but the analogy of the current ride investors find themselves on with regard to the stock market. In a similar fashion of setting new records, the recent market turbulence set a record of its own with the fastest and steepest sell off into bear market territory in history.
It took the DOW only 20 trading days to fall 20% into bear market territory, the average 20% decline has taken 255 days. It took the S&P 500 only 22 trading days to fall 30% from its record high reached on Feb. 19, making it the fastest drop of this magnitude in history. The steep ups and downs have continued and luckily a decent portion of decline this has been recovered to date, however, I expect we will continue to experience a thrill ride given the uncertainty surrounding this virus. Though this kind of ride isn’t nearly as fun as that experienced on a roller coaster, one thing I’ve observed is that people I speak with are approaching the market volatility with less fear and anxiety than the last major drop in 2008-09. There is hope that when this virus does pass, the economy will rebound quickly as we all look to get back to life as normal, acknowledging it won’t be at the flip of a switch and some things will likely experience ongoing change, but hopefully for the better.
Here is a summary of how things wrapped up in Q1. US stocks were down 20.9%, international stock down 23.26% and emerging markets down 23.6%. Bonds in the US were up 3.15% and global bonds were up 0.51%.
For a detailed market overview, click here.
In an effort to buoy the economy and help the many individuals, families and businesses directly impacted, the Coronavirus Aid, Relief, and Economic Security Act (CARES) was quickly signed into law on March 27th. There is a lot covered in this bill, below is a summary of several key provisions. If you have further questions, feel free to contact me.
Checks – Many individuals and families will receive checks of up to $1,200 for individuals, $2,400 for married couples and $500 for each child under 17. The payments start to phase out at income of $75,000 for individual filers and $150,000 for married.
Required Minimum Distributions – RMDs are waived for 2020 so if you don’t need the money from your retirement account you don’t have to take it, and if you already took it you can return it. This includes inherited retirement accounts.
Charitable Contributions – Those who take the standard deduction when filing their taxes can claim up to $300 in above the line charitable contributions. Cash givers can deduct up to 100% of AGI vs. the previous 60%, and cash gifts by corporations can be up to 25% of taxable income vs. the previous 10%.
Retirement Account Distributions – If you were directly impacted by the virus you may be able to take up to $100,000 from your retirement account(s) if needed, subject to certain terms.
Unemployment – Benefits have been expanded in terms of the amount and duration, as well as who is eligible, which may extend to self-employed and contract workers.
Small Businesses – There are a number of benefits potentially available for businesses up to 500 employees, including loans up to $10M or 2.5x average payroll costs (whichever is lower), which may be eligible to be fully or partially forgiven.
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