Institutional Services

Markets in Review

Equity markets around the world saw strong 2019 gains and the decade ended on a high note in the U.S. with equities up 31.5% (as measured by the S&P 500 Index) and bonds up 8.7% (as measured by the Bloomberg Barclays US Aggregate Bond Index) for the year.  January was a continuation of these strong returns as the “Phase One” trade deal with China eased trade tensions, Brexit was getting finalized and the Federal Reserve was likely going to pause interest rate increases for 2020.  All of this created a positive backdrop for a promising 2020 until mid-February when the world began facing a global pandemic with a new coronavirus, COVID-19.  Many countries around the world enacted “shelter in place” policies which caused an economic standstill unlike anything we’ve ever seen in history and the long-running bull market, which lasted approximately 11 years, was over.  Domestic equity markets posted their worst quarter since 2008 down -19.6% during the first quarter as measured by the S&P 500 Index, bringing the 1-year return down to -6.98% at the end of the quarter. 

Equity performance deteriorated even more for the small- and mid-cap companies with the Russell 2000 Index and Russell Midcap Index down -30.61% and -27.07%, respectively during the quarter. 

Growth stocks continued to outperform their value counterparts across all market capitalizations. While all S&P 500 Sectors produced negative returns during the quarter, technology was the only sector that had a positive return over the trailing 12 months at 10.4%.  Energy was the worst performing sector while the oil price war continued between Saudi Arabia and Russia.   Brent Crude oil prices fell from $66 in January to $26.42 at the end of the quarter and the energy sector fell 50% during that same time. 

Equity markets outside of the U.S. posted even worse losses in the first quarter with the Developed and Emerging Markets indexes down -22.8% and -23.6%, respectively.  The UK equity markets declined the most during the quarter losing -28.8% due to weakening corporate profits prior to the coronavirus outbreak.

The Federal Reserve Board took immediate action, prior to their scheduled March meeting, to return the Fed Funds rates to zero as they did in the ’08-’09 recession by cutting rates by 50 bps and then 100 bps a week later.  In addition to these rate cuts, the Federal Reserve said they will do whatever it takes to provide massive amounts of liquidity to the financial system.  At quarter-end, the Treasury yield curve ended at these yields:  2-year 0.23%, 5-year 0.37%, 10-year 0.70% and 30-year maturities at 1.35%.

Initial estimates for Gross Domestic Product (GDP) in the first quarter are coming in around 1%, significantly down from the previous quarter’s growth rate of 2.1%.  The Purchasing Manager Index, which measures the economy’s service sector, declined from 49.4 in February to 39.8 in March (NOTE: Numbers above 50 indicate acceleration in the service sector).  Approximately 20% of GDP comes from the service sector and it is widely anticipated the social distancing measures to combat the spread of the coronavirus will likely push the U.S. economy into a recession. 

Due to millions of unemployment claims during the month of March, the U.S. unemployment rate increased to 4.4% during the first quarter and is expected to rise considerably more as employees continue to be laid off or furloughed due to the effects of the coronavirus. In March, nonfarm payroll employment fell by 701,000, almost two-thirds of these jobs were in the leisure and hospitality sector.  The number of unemployed persons rose by 1.4 million to 7.1 million in March.

The Consumer Price Index declined 0.40% in March, the largest monthly decline since January 2015. The year-over-year headline inflation rate increased by 1.5% during the quarter, which is down from the previous quarter at 2.3%.  A sharp decline in gasoline prices was the major cause for the monthly decline, in addition to decreases in airline fares and lodging away for home.  The food index rose sharply with the food at home index rising 0.50% in March, offsetting some of the decline in the Index. 

How to Stay Cyber Healthy

During this period of high anxiety, we are more vulnerable to hackers and scammers. The fraudsters are taking advantage of our fear and uncertainties. They are launching their own computer viruses, malware and fraudulent web- sites with COVID in their names. Some obvious scams that will ask you to call and give personal information are:

  • Social Security: Victims receive an official looking letter saying their benefits have been suspended.
  • Miracle COVID cures: Robocall that offers free COVID test kit or some type of cure.
  • Charity Scams: Receive email or call from a well-recognized charity soliciting a donation.
  • Stimulus Check Scams:  Scammers pretending to be government officials and asking for bank information.

Caution on emails:

  • Do not open attachments unless you are certain of the source.
  • Pay attention to the website URLs. They may look identical to a legitimate site but may have a single variation.
  • If you did not ask for it, do not respond to it.
  • Avoid clicking unknown links posted on social media.  Use legitimate news sources.
  • Monitor your credit activity online by checking bank and brokerage statements, credit card activities, and credit reports (

A Few Resources:

Expanded Economic Injury Disaster Loans (EIDL)

If you own a small business, you may qualify for an Expanded Economic Injury Disaster Loan (EIDL).  Generally, EIDLs are intended to provide businesses with working capital to recover from an economic injury caused by a disaster.  The EIDL program is up and running on the SBA’s website.  Additional information is available here:

Here are some highlights about the EIDL:

  • EIDL applicants receive an immediate $10,000 emergency grant cash advance, which is forgiven if spent on paid leave, maintaining payroll, mortgage or lease payments or repaying obligations that cannot be met due to revenue losses.
  • An entity may be able to participate in the EIDL program and the Paycheck Protection Program but cannot cover the same costs under both programs.

Start the loan application here

Here is a step-by-step guide from the Chamber of Commerce on how to apply for an EIDL:

What is the Paycheck Protection Program?

The U.S. federal government just passed a big coronavirus relief bill, aimed at supporting small businesses through this difficult time. One of the measures in the bill is the Paycheck Protection Program—here’s a link to everything you need to know.

Breaking Down the Coronavirus Aid, Relief, and Economic Security (CARES) Act

The Senate finally passed the $2 trillion relief package referred to as the CARES Act after some delays and theatrics. When you factor in the loans and other parts, the relief package total is over $6 trillion.  The main part of the $2 trillion relief package represents about 10% of our GDP. This is a very large bill with over 850 pages, so there is a lot to unpack.  Let’s break down this relief package to understand how this will impact you.

Coronavirus Aid

Money will be received by everyone qualifying based on the gross adjusted income of your 2019 tax return, or your 2018 return if you have not yet filed, which should be the case for most people. Below is a chart of how much to receive based on tax filing status and adjusted gross income.

In addition, you should receive an additional $500 per child under the age of 17. Most checks will be sent via direct deposit based on the bank account used for your tax returns and the rest will be mailed.

Additional Unemployment Benefits

Unemployment benefits have been expanded and will cover self-employed individuals and independent contractors. Unemployment benefits will be increased by $600 per week in addition to the normal unemployment benefit for up to four months. The length of time an individual can receive unemployment was extended as well.

No RMDs for 2020

Any individual who would normally be subject to taking a Required Minimum Distribution (RMD) for 2020 will no longer have to for 2020, based on the new bill. This applies to any individual that has an IRA, 401(k), 403(b), 457(b), SEP-IRA, SIMPLE IRA and inherited IRA. This change DOES APPLY to anyone that turned 70.5 in 2019 and delayed their first RMD till 2020, so no distributions are needed, and delaying in this instance is rewarded.

Easier Access to Retirement Accounts

Those under age 59.5 impacted by COVID-19 can take hardship distributions in 2020 of up to their entire account balance or $100,000 (whichever is less) from 401(k)s or IRAs, without being charged the 10% early-withdrawal penalty or mandatory withholding requirements. The income for tax purposes will be spread over three years unless you choose to include it all in 2020. The great part is individuals will have up to three years to repay this distribution if they choose (in effect, having treated it as a loan). The advantage of repaying the distribution is it would substantially reduce the tax impact, and you can even amend returns to get a refund after repaying the amount!

Many employer-sponsored plans, like 401(k)’s, offer employees the ability to take out loans against their retirement accounts. The annual cap on loans from such plans was increased to $100,000 or 100% of the plan balance, whichever amount is smaller. Currently, plan borrowing is limited to $50,000 or 50% of the vested account balance, whichever is less. The repayment of these loans can also be delayed up to one year. This is another potential way to access cash if needed, without paying taxes if the loan is repaid.

Changes to Charitable Gifting

For those who are charitable minded, there is a large increase in the tax-deductibility of charitable gifting. For 2020, cash gifts made to charities can now equal 100% of Adjusted Gross Income (AGI). These charitable contributions CANNOT be used for Donor Advised Funds or 509(a)(3) supporting organizations. Normally the limit is 60% of AGI, so a person with a $200,000 AGI can now deduct up to $200,000 if charitable gifting is made in cash, where normally they would be capped at $120,000 (60% limit).

Delay Student Loans

Individuals with student loans do not have to make any payments until September 30th and the loans will not accrue any interest during this time. If you wish to take advantage of this, you must be proactive and contact your loan provider since voluntary payments are still allowed. Most collection efforts will be suspended during this time, as well. For 2020, employers can pay up to $5,250 of student debt without it having to be included in the employee’s income.

Updates to Health Care Benefits

All tests for coronavirus must be covered by your insurance. Over the counter medicine and feminine healthcare products are now qualified expenses for Health Savings Accounts and Medical Savings Accounts.

Tax Credit for Retaining Employees

A new Employee Retention Credit has been created that is worth up to 50% of the qualified wages paid for each employee. To qualify there are several factors that include:

  1. Business operations were partially or fully suspended due to COVID-19
  2. Gross revenue is less than 50% of revenue in the same quarter vs. the prior year.

There are many layers to this credit so please work with your tax advisor for more information.

Forgivable Small Business Loans

Part of the CARE Act includes the Paycheck Protection Program. This is a partially forgivable loan through the Small Business Administration (SBA) and will be available through SBA lenders. Qualifying businesses include sole proprietors with fewer than 500 employees (or employee size standard under NAICS Code if over 500 employees). The loans will be for the lessor of $10 million- or 2.5x the average payroll costs over the last year at a rate no greater than 4%, with terms up to ten years. The loan may be forgivable based on how the proceeds are used and the number of employees retained.

Businesses May Defer Payroll Taxes

Businesses will be allowed to defer payment of payroll taxes for 2020 over a two year period with 50% due December 31, 2021 and the remaining 50% by December 31, 2022

Net Operating Loss Rules

Now corporations (excluding REITs) with Net Operating Losses (NOLs) from 2018,2019 or 2020 can now be carried back for up to five years. NOLs now can be used to offset 100% of taxable income for 2018, 2019 or 2020 (previous rules were capped at 80%).