Second Quarter Newsletter 2020
As the new year began, who could have imagined the Corona Virus would explode in the U.S. in just a few weeks, threatening to overwhelm the healthcare system and forcing a shutdown of so many sectors of our economy? As the scope of people and industries affected by COVID-19 grew, markets reacted. On March 31 Fox Business reported the Dow and S&P 500 had posted their worst first quarter on record.
The piece, available on foxbusiness.com, quotes Lauren Simonetti saying, “there was not a single Dow Jones winner in March.”
By the middle of April, some improvement was noticeable. After a positive week in the S&P, DJIA, and NASDAQ, ending April 10, year-to-date returns were -13.2% for the S&P, -16.3 for the DJIA, and -8.9 for the NASDAQ, and 1 year figures were -1.5% S&P, -7% DJIA, and +4.2% for the NASDAQ. 
For the week ending May 29, the same report showed year-to-date losses shaved to -5.0% for the S&P, -10.1 for the DJIA, and +6.2% for the NASDAQ. All three were in positive territory for the 1-year return, with the NASDAQ up 27.1%. The NASDAQ index has been the star performer and closed the week of July 10 up 30.8% for 1 year. The S& P was also well in the black by 8.5% on a 1 year; and the DJIA was almost in positive territory at - 0.5%. The relative performance of these indices reflects the drag which hardest hit industries have had on the markets, and the strength of companies trading on the NASDAQ which seem uniquely suited to retain and grow earnings in the COVID environment, and may flourish in a changed world post-Covid. Throughout the last quarter, Energy, Financials, and Industrials have been consistently the bottom 3 sectors. Information Technology, Consumer Discretion, and Health Care have been the top 3 in some order.
The turnaround is surprising to many, given the damage which has been done to the economy, the uncertainty about the trajectory of the virus from here, and the current political and social unrest. However, others point out the recession was one brought on through deliberate action to flatten the curve and prevent the virus from overwhelming our healthcare system. It came when the economy had been in a position of strength, and the Fed and Treasury took immediate and bold action. Lord Abbott features a discussion among advisers on this topic, “2020 Midyear Outlook; a Brief Summary.” Market Analyst Giuliano’s Martini states the recession “came on almost immediately,” with a “sense of urgency,” quick Fed action, and various programs to support financing, market liquidity, and retention of jobs, we enacted “creative and timely measures,“ which may have reduced the tailwind we would otherwise have expected to drag the market down for some time.
A major concern has been whether the virus will come back this winter. An effective and widely available vaccine could still be some months away. Franklin Templeton’s, “What Happened Last Week” article ending July 13 asks, will there be a second wave Pandemic; and will the economy reopen successfully? . . . While impossible to predict, the recent social distancing efforts may well last until a safe vaccine is found and/or the virus is otherwise eradicated.”
On the bond front, Investment Grade Municipals performance has been improving since the market disruption in early March. Cumberland Advisors Market Commentary dated June 8, discusses reasons to feel the muni market still offers good value. Patricia Healy, CFA, Senior VP of Research and Portfolio Manager states “The Corona Virus - induced recession comes on the heels of a period of strong growth in revenues.” Many issuers have accumulated cash reserves from which to pay interest and make redemptions. “The CARE Act was put together very quickly after the shutdown; the Heroes Act is being considered by Congress, and could provide another $1 trillion dollars for state and local governments.” The Municipal Liquidity Facility, or MLF, can purchase municipal bonds for states, large cities, and counties to support liquidity. While downgrades and negative news could cause volatility near term, periodic sell offs may continue to provide buying opportunities over the second half of the year.
Muni Opinion, July 2020, an article on the DWS website says “municipal credits have demonstrated resilience over the long term, and we see that dynamic continuing . . .We don’t have 20/20 vision into the future, but we’re pretty sure tax rates aren’t headed down any time soon.”
The many twists and turns in the markets as the COVID crisis has played out, reinforces for us that trying to decide what will happen and how the markets may react, is a frustrating and risky venture. That is why we continue to watch what the markets are doing now and have a discipline and process which helps us to adapt our strategy based on current trends and risk levels. We know these are trying times and welcome a chance to talk with you if you have questions or concerns.
Our country recently celebrated the 4th of July in an environment without many of the traditional rituals, events and activities that define Independence Day. Our family enjoyed a day at the lake with appropriate social distancing and hoped the fog and drizzle would lift enough for folks around the lake to light up their usual private displays of fireworks. Sure enough, a few hardy souls began to set off fireworks, and a few intrepid boat owners ventured out into the lake with their guests, jockeying for a good view. It soon became obvious that people who had traditionally set off a display at their camps had kicked their shows into high gear and many people were setting off for their first time. There were some amazing shows; they went on and on. Soon the lake was full of boats and those of us on board were swiveling our heads like avid fans at a tennis match trying to take in all the action. It felt like everyone was feeling celebratory and we got to experience a wonderful 4th after all.
Take some time to get outside and enjoy the summer in a responsible way. Watch out for yourselves and your loved ones. Know that we are here for you and committed to helping you navigate through this crisis. We appreciate your trust and your business.
The Galarneau Group
The Galarneau Group is a registered representative of Cantella and Co., Inc, a registered broker-dealer and registered investment adviser. Material presented herein is for informational use only by agents of existing and prospective customers of the presenting representative and does not reflect the views of Cantella. This information may not be duplicated or redistributed without prior consent of Cantella and distribution or publication of this material does not represent a solicitation to complete a financial transaction with the firm. Though information was prepared from sources believed reliable, Cantella does not guarantee its accuracy or completeness. Past performance is no guarantee of future results. The Dow Jones Industrial Average is an unmanaged, price-weighted index of 30 large capitalization stocks with dividends reinvested. Please note that investors cannot invest directly in an index. The NASDAQ Composite is an unmanaged, market capitalization weighted index of stocks listed on the Nasdaq Stock Exchange, reported as price return without reinvestment of dividends. Please note that investors cannot invest directly in an index. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment. The Standard & Poor’s 500 Index (“S&P 500”) is an unmanaged, market capitalization weighted index of 500 widely held stocks, with dividends reinvested, and is often used as a benchmark for the U.S. stock market. Please note that investors cannot invest directly in an index. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment. Cantella and Co., Inc. does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction. Amounts withdrawn are subject to income taxes. Withdrawals before age 59 1/2 may also be subject to a 10% federal income tax penalty and plan restrictions.
 Worst Quarter for Stocks Since 2008, Lauren Simonetti, Fox Business. Mar. 31, 2020.
 What Happened Last Week Reports, Darren Doughty. Franklin Templeton. April 10, 2020.
 What Happened Last Week Reports, Darren Doughty. Franklin Templeton. May 29, 2020.
 2020 Midyear Outlook; a Brief Summary, Lord Abbott. July 6, 2020.
 What Happened Last Week Reports, Darren Doughty. Franklin Templeton. July 13, 2020.
 Cumberland Advisors Market Commentary, Patricia Healy. June 8, 2020
 Muni Opinion, DWS. July 2020.