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Markets React to Fed Report – June 15, 2020

The Week on Wall Street

Investor sentiment turned negative last week, amid an increasing number of COVID-19 cases in states where reopening has been underway as well as a subdued economic forecast from the Federal Reserve.

The Dow Jones Industrial Average dropped 5.55%, while the Standard & Poor’s 500 lost 4.78%. The Nasdaq Composite Index slipped 2.30% for the week. The MSCI EAFE Index, which tracks developed stock markets overseas, fell 3.10%.1The Wall Street Journal, June 12, 2020,2The Wall Street Journal, June 12, 2020,3The Wall Street Journal, June 12, 2020

Reality Bites 

The optimism that drove stock prices higher these past several weeks slipped away on reports of a jump in COVID-19 cases, which sparked worries of a second wave slowing the economic recovery. A sober forecast for the economy by the Federal Reserve further dampened investor sentiment.

The week started upbeat with “reopening” stocks, e.g., financials, transportation, retailers, travel and leisure, and industrials, leading the way higher. But the momentum was soon lost as stocks turned mixed on Tuesday and Wednesday and then moved decidedly downward, with the S&P 500 losing 5.9% on Thursday.4The Wall Street Journal, June 11, 2020

Amid a volatile week, big technology companies resumed their market leadership, with the NASDAQ Composite closing above 10,000 for the first time. Stocks pared their losses on Friday, but it wasn’t enough.5CNBC, June 12, 2020

Fed Forecasts Economic Growth and Interest Rates

On Wednesday, the Federal Reserve said that it would keep the federal funds rate near zero and maintain its monthly purchases of Treasury bonds and mortgage-backed securities.

The Fed also issued its forecasts for 2020-2022, indicating that it saw its benchmark federal funds rate remaining at zero, with inflation at 0.8% for 2020, increasing to 1.6% in 2021, then to 1.7% in 2022. Fed officials also expect the economy to shrink by 6.5% this year, with Gross Domestic Product growing 5% and 3.5% in 2021 and 2022, respectively. Their forecast for unemployment predicts a steady decline over the next 2½ years, from 9.3% by the end of 2020 to 5.5% in 2022.6CNBC, June 10, 2020

Robert Roman
CEO, Managing Director
MGO | Wealth Advisors

THE WEEK AHEAD:
KEY ECONOMIC DATA

Tuesday: Retail Sales. Industrial Production.
Wednesday: Housing Starts. 
Thursday: Jobless Claims. Index of Leading Economic Indicators.

Source: Econoday, June 12, 2020
The Econoday economic calendar lists upcoming U.S. economic data releases (including key economic indicators), Federal Reserve policy meetings, and speaking engagements of Federal Reserve officials. The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision.

THE WEEK AHEAD:
COMPANIES REPORTING EARNINGS

Tuesday: Oracle (ORCL), Lennar (LEN).
Thursday: Kroger (KR).

Source: Zacks, June 12, 2020
Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Any investment should be consistent with your objectives, time frame and risk tolerance. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice.

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“Never let your sense of morals get in the way of doing what’s right.”
– Isaac Asimov

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A Compromise Can Be a Beautiful Thing

Sometimes taxpayers owe more money in taxes than they can afford to pay to the IRS. When this happens, you have the option to file an Offer in Compromise, which allows you to pay less than you owe. If you opt to pursue this route, here are some specific details you should know.

Affording the full debt amount. If you can afford to pay your full debt, you will, most likely, not qualify for an Offer in Compromise. Instead, you should pursue other options, such as setting up a payment plan with the IRS.

Filing all required tax materials. In order to apply for an Offer in Compromise, you must have filed all necessary tax paperwork with the IRS.

Making an initial payment toward your debt. The IRS may require you to pay an amount toward your owed taxes when you apply for Offer in Compromise. Any payments will apply to your debt.

You can find out if you qualify by using the IRS Offer in Compromise Pre-Qualifier Tool.

* This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.

Tip adapted from IRS.gov7IRS.gov, June 12, 2020

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Avoiding a Back-Nine Blowup

The front nine goes really well for you: you have a couple of birdies, an eagle, or you par half the holes, and it looks like you’re on pace to break 90, 80, or whatever your goal may be. On the back nine, that’s all you can think about. You end up putting pressure on yourself, and your game quickly suffers.

The lesson here is that you can only play one shot at a time. Thinking about your scorecard instead of the shot you need to play right now interferes with your focus and process. If you break 90 or 80, it won’t be because of adrenaline or daydreaming. It will be because you maintain your focus. So, stick to your pre-shot routine, and focus on each shot at hand. Think of the hole in front of you, not the “whole” of your round, and your back nine may be as good as your front nine.

Tip adapted from LiveAbout.com8LiveAbout.com, June 12, 2020

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Why It’s Important to Stop and Smell the Roses

    It’s a cliché expression, which most of us have heard and likely used, but research has shown that there may be actual health benefits when you “stop and smell the roses.” One might think that the benefits are solely based on the simple act of pausing and grounding oneself in the present, but there is a little more to the story. Just be mindful that any information here isn’t a substitute for medical advice from your doctor.

    Researchers conducted a study of the information retention abilities of 50 6th graders. Each student was given identical lessons to study before bedtime. The other participants were instructed to have rose-scented incense on their desk while studying at home; the other participants, no fragrance. Seven days later, they took a test on the lesson. The students who studied with the rose fragrance took the test with rose incense. The fragrance-free group did not have incense. The rose group scored, on average, 30% higher on the exam than the other group.

    So, what does this mean? Certain fragrances, like rose, may help improve a person’s memory recall when used in the right context. Just another reason to pause and enjoy one of nature’s most beautiful flowers.

    Tip adapted from MSN.com9MSN.com, February 4, 2020

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    Going Green for Baby

    Are you or someone you know expecting or a new mom? It’s now easier than ever to start baby off right with green and eco-friendly items.

    One of the most effective and easiest ways to go green with a new baby is to use cloth diapers instead of disposable ones. Cloth diapers do cost more initially, but they will save you a ton of money in the long run, while also being kinder to the environment. Many parents also find that their babies have a far lower incidence of skin irritation and diaper rash when using cloth diapers.

    When it comes to toys and teethers for your baby, look for items that are made from organic cotton and free from chemicals.

    Tip adapted from GreenAmerica.org10GreenAmerica.org, June 12, 2020

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    References   [ + ]

    1, 2, 3. The Wall Street Journal, June 12, 2020
    4. The Wall Street Journal, June 11, 2020
    5. CNBC, June 12, 2020
    6. CNBC, June 10, 2020
    7. IRS.gov, June 12, 2020
    8. LiveAbout.com, June 12, 2020
    9. MSN.com, February 4, 2020
    10. GreenAmerica.org, June 12, 2020