July 17, 2020
The rotation out of growth and into value powered the Dow Jones Industrial Average to a third consecutive week of gains. This week’s strong consumer spending and industrial production figures, along with promising vaccine results, reinforced the market’s bullish thesis. Sentiment remains resilient despite the continued rise in Covid-19 case counts. As of Friday morning, John Hopkins University was reporting 3,592,316 confirmed cases of Covid-19 in the U.S. Florida, Texas, and California remained hotspots to watch and are part of a larger group of 18 states that a White House task report designated as coronavirus “red zones” that it recommends should roll back their reopenings. Nonetheless, markets dismissed the latest coronavirus news to push the Dow to a 2.30% weekly gain.
Stimulus Burns Hole in Consumers’ Pockets
With stimulus checks and extended unemployment benefits in hand, consumers were ready to splurge as more states loosened stay at home restrictions in June. Retail sales for the month rose 7.50% as consumer spending returned to pre-Covid levels. Popular among shoppers were big-ticket items such as motor vehicles, up 8.2%. Home décor for the work from home crowd helped push furniture sales up 32.50%. Clothes jumped off the rack and on to consumers, with sales increasing a whopping 105.10% as shoppers took advantage of the deals offered by struggling retailers. Restaurants and bars also got a bump, up 20%. Overall, it was a strong report, showing consumers are confident in spending. The wild card remains to what degree the rollback in openings dampens consumption at a time when the job market still shows rising claims for first-time unemployment benefits, stimulus checks are drying up, and extended unemployment benefits are set to sunset.
Industrial Production Gathers Steam
Factories, mines, and utilities gathered steam in June, sending industrial production up a seasonally adjusted 5.40%. That builds from May’s 1.40% gain. Capacity utilization, a measure of slack in the economy, rose to 68.6% in June, up from a revised 65.1% in May. The manufacturing sector led the gains in industrial production, up 7.20% in June, driven by automakers restarting production. Factory restarts also helped utilities, whose output rose 4.20%.
Confidence over rising consumer spending and industrial production prompted investors to dump richly priced growth stocks in favor of unloved, economically sensitive value stocks. As has been the case for many weeks now, markets remain highly confident the U.S. economy will continue to gather steam in the weeks ahead despite the surging number of Covid-19 cases nationwide. This positive sentiment was most evident this week in the first crop of Q2 2020 earnings. Value stocks, led by financial giants Goldman Sachs and JPMorgan, managed to beat estimates due to record-breaking trading profits which helped offset retail banking weakness. Positive earnings surprises should be a regular event this quarter given that the bar has been set extremely low. FactSet forecasts that earnings will fall -44.60%. If this proves to be true, this would be the biggest decline in earnings since Q4 2009 when earnings fell -70% amidst the financial crisis. The market is going to give a pass for Q2 and Q3 earnings just given the fact that the economy is still spinning back up, but they will be acutely sensitive to management’s guidance particularly now that we are seeing some states pull back on their reopening plans as we begin the third quarter.
The Week Ahead
The housing market has sizzled as urbanites have chosen to pick up and move out of the city in an effort to escape Covid-19. We’ll see if the momentum can continue with the latest reports on new and existing home sales. Earnings season also continues with tech and consumer companies reporting results.
Preserving Your Legacy
Over the past 40 years, our advisors have been helping families, couples, and individuals determine optimal paths for the transfer of assets and family businesses to future generations. Throughout the process of establishing the structural aspects of wealth transfer, we remind our clients that estate planning is about more than distributing wealth — it is also an opportunity to pass on your wisdom and values. Our advisors help clients define and communicate their legacy and express their hopes and wishes for heirs and loved ones.
A personal legacy letter which is sometimes called an ethical will is an opportunity to say all of the things that you would say to your friends and family if you knew you only had one last chance. Below are some ideas to consider should you be interested in preparing a letter or letters for loved ones. Our advisors recommend placing at least one copy with your estate plan. Keep in mind it does not have to be a written letter. A family legacy video is another way to preserve a legacy for generational successors.
Explain your intent. For your beneficiaries, explain how and why decisions were made regarding your estate plan. This can help minimize any potential discord among heirs and ensure beneficiaries are all on the same page, thereby reducing the risk of future conflict.
Share your story and family stories. Think about what you want future generations to know about you and your life. What personal or family stories or family history do you want to leave behind? What would you want people to know about the decisions you made or life lessons learned or significant ancestral history? This is your opportunity to help your children and others benefit from your wisdom and experience. Take time to share beliefs, experiences, life lessons, even regrets, with loved ones.
Communicate your hopes and wishes. A legacy letter is an opportunity to express how a legacy can be carried on, whether that may be guidance for a multigenerational business or charitable account or foundation. It may also be personal wishes for loved ones, such as living well and taking care of each other.
Transmit values. A personal legacy letter is a chance to communicate family values, including those relating to money or philanthropy. What values do you hope loved ones will integrate into their own lives? Write personal notes to loved ones. Even if it is simply to say that you love them or that you are proud of them, personal notes can provide emotional comfort to individuals who are important to you after you are gone, not only your beneficiaries, but to others who may not otherwise have the opportunity to read your personal legacy letter or hear how your life has been impacted by them. This may include close friends, mentors, or teachers. The notes may seem strange to write, but they can be extremely cherished to those who may outlive you.
Distribute meaningful family items. Unlike last wills and testaments, ethical wills or personal legacy letters are not legally binding and do not bequeath assets. However, they can be an opportunity to outline your intent for who gets a particular family heirloom or sentimental item and to write about the history of any special items. Remember to note where they are located along with any specific care instructions.