Gill Capital Partners March 27, 2020 Market Update

Before heading into the weekend, we want to provide a brief update on this week’s market gyrations, along with a summary of the fiscal stimulus plan (Coronavirus Aid, Relief, and Economic Security Act, “CARES Act”) that was approved today.

Market Update

Many are asking if this week’s rally means the worst is behind us with respect to the markets. We anticipate more volatility in the weeks and months to come as the reality of the economic damage becomes clear. The market is pricing in some level of anticipated negative news and economic data in the coming months, but as the real data comes out, the market will need to adjust to the reality. So, while some amount of bad news is already priced in, it is impossible to say at this point if the market has it right, is too optimistic, or has underestimated the actual damage to the economy. The market rallied significantly this week as optimism grew around the size and likelihood of the fiscal stimulus plan. We will discuss the stimulus plan in more detail below, but the plan is massive, and the market appears to generally agree with the size and scope. A couple of weeks ago we stated that we likely will need two major items for the market to find a bottom and begin to stabilize:

1.       Fiscal & monetary stimulus

2.      Clarity on the virus (peak infections, death rate, length of stay at home orders, etc.)

With the plan passing the U.S. House of Representatives today, and Trump’s promise to sign the bill, we can put a check mark next to number one. Unfortunately, we may have a way to go with respect to gaining important clarity on the virus. We need to see infection rates start to decline materially and consistently before the market will stabilize. That is not to say that the market will not begin to move higher before that; in fact, the market often moves before critical data is available. However, we think clarity on the virus is going to prove to be a key input into market and economic stability.

Fiscal Stimulus Update

Just how big is the bill? In a word, huge. As shown below, this fiscal stimulus package is twice as big as a percentage of GDP as the bill that was passed during the financial crisis in 2009.

2020 March 27 Graph.jpg

Source – Value Walk

At $2.1 trillion, it is nearly three times the nominal size of the $787 million American Recovery and Reinvestment Act of 2009.

Where is the stimulus money going? Below is a high-level breakdown of the major categories within the plan. Details in certain areas are not yet readily available, and more information will be available once it is finalized.

2020 March 27 Table.jpg

IRA & 401k Provisions – There are some interesting components of the bill related to IRAs and 401Ks.

  • Required Minimum Distributions (RMD’s) can be suspended in 2020, reducing taxable income for those that would otherwise be required to take an RMD.

  • Under certain qualifying circumstances, hardship distributions from IRAs & 401Ks will not be subject to the 10% early withdrawal penalty. The distributions will still be taxable, however.

  • 401k loans can be increased up to 100% of account value or $100k within the next six months, and re-payments can be delayed for a year.

We will of course follow up with more specific and detailed information. However, in the meantime, do not hesitate to reach out to us to discuss whether any of these opportunities might benefit you.

Funny/Interesting Quote of the Day

Day 1: I have stocked up on enough non-perishable food and supplies to last me for months, maybe years, so that I can remain in isolation for as long as it takes to see out this pandemic.

Day 1 + 45 minutes: I am in the supermarket because I wanted a Twix.

As always, please let us know if you have any question or concerns, or if we can provide assistance with any other financial planning matters including education, taxes, insurance or estate needs.

Erin Beierschmitt