The Week on Wall Street
Stock prices ended the week slightly lower, despite news of positive results from a test trial of a COVID-19 drug treatment and several states easing their economic lockdowns.
FACT OF THE WEEK
On this day in 1878, Thomas Edison's Phonograph - a revolutionary device with the ability to record and play back sound was first displayed at the Grand Opera House. Greeted with hysteria, his invention soon led off a new modern music popular culture. Described as his favorite invention, Edison continued improving it over and over for the next fifty years.
MARKET MINUTE
The Dow Jones Industrial Average slipped 0.22%, while the S&P 500 lost 0.21%. The Nasdaq Composite Index dropped 0.34%. The MSCI EAFE Index, which tracks developed stock markets overseas, rose 4.34%.
Light at the End of the Tunnel?
Investors were emboldened last week by two significant developments: a quickening in the pace of state re-openings and positive results from a clinical trial of pandemic treatment. These developments turned investor focus towards economic normalization and away from the economic destruction that has occurred.
Market optimism was also supported by earnings reports early in the week, which showed that some companies were navigating reasonably well through the crisis. But stocks retreated on Friday as traders reacted to mixed earnings from two tech titans. The two firms offered a reminder that even the strongest companies have not escaped the economic impact of the pandemic.
Worries over possible new China trade tariffs also weighed on stocks as the trading week came to a close.
Corporate Earnings
It was a busy week for corporate earnings reports. So far, the earnings season has been mixed; it has provided some clarity, however, about the impact of COVID-19 on businesses.
With 193 of S&P 500 companies reporting, 65% have checked in with results ahead of consensus Wall Street estimates. Among the better-performing sectors to date were Technology and Consumer Staples. Financials were among the laggards.
Final Thought
Despite the continued shutdown of businesses nationwide, stocks staged a powerful rebound in April, leading some to wonder if Wall Street is disconnected from Main Street. But market watchers are quick to point out that Main Street may not be as disconnected as it appears.
April’s rally was led by a group of very large companies, with over 75% of stocks in the S&P 500 trading below their 200-day moving average.
FINANCIAL STRATEGY OF THE WEEK
Inherited Accounts Under the CARES Act
The "Coronavirus Aid, Relief, and Economic Security" ("CARES") Act has two fundamental provisions you should be aware of regarding required minimum distributions (RMDs). New regulations will allow people to have more control over their money and to help those looking to sell their investments.
One provision allows retirees to forego taking RMDs from Individual Retirement Accounts (IRA) or 401(k)-style plans this year.
The other provision allows people who have inherited 401(k)s, IRAs or Roth IRAs to suspend distributions in 2020 (while RMDs don't apply to people with Roth IRAs, they do apply to investors who inherit Roth accounts).
Let's take a look at a couple of examples.
Let's say an account holder has been taking RMDs from an inherited account for several years using the life-expectancy method set by the Internal Revenue Service. The account holder can forgo a distribution in 2020, and resume distributions in 2021.
Suppose an account owner passed away on January 1, 2020, and left the IRA to an adult child. The new 10-year rule would start in 2021. The beneficiary would have until the end of the 10th year to withdraw the entire account.
If you have already taken a distribution from an IRA or 401(k)-style plan this year, you may be able to roll the funds back into the plan. But if you have already taken a distribution from an inherited IRA, you may not be allowed to put that money back. Keep in mind, the CARES Act is a 335-page bill, and some of the provisions are open to interpretation. Please contact your tax or legal professional to understand how it might impact your situation.
In an uncertain time, these provisions give account owners some flexibility that may provide some relief and to help those who may be struggling with the economic, emotional, or physical toll of COVID-19.
As always, please contact my office with any questions or financial concerns you may have.