2nd Quarter 2019 comments

The U.S. stock market had a bumpy ride in the second quarter of 2019.  The losses in May were recovered in June, primarily due to a shift in the Federal Reserve’s tone on monetary policy and renewed hope of a China trade reconciliation. 

The uncertainty surrounding trade talks and tariffs has begun to filter through the global economy. Global growth has slowed, and the U.S. remains firmly within the "late innings" of its economic cycle.

As of the end of Q2 2019, the S&P 500 posted impressive gains of 18.5% year-to-date. Growth stocks once again outperformed value stocks during the second quarter.  With the Dow, the S&P and the NASDAQ all trading at historical highs, Chesapeake Wealth Management maintains our equity strategy discussed further below. 

Bond yields moved lower during the Second Quarter of 2019, due to slower economic growth, moderate levels of inflation, ongoing trade issues, and an expected 25-point rate cut by the Federal Reserve at the end of July.

Demand for U.S. fixed-income assets has kept pressure on rates to remain low.  The major international players who issue quality, sovereign debt are the United States, Germany and Japan.  When you consider that the U.S. 10-year Treasury is currently at 2.00%, while the German Bund at -0.30%, and the Japanese 10-year bond at -0.20%, it is no surprise that, investors naturally flock to U.S. debt.

All in all, the U.S. economy looked pretty good at the end of Q2.  Economic activity maintains its moderate pace.  The consumer continues to be a source of strength for the U.S., according to June Retail Sales data.  Spending is strong across retail stores, restaurants and online businesses.

The trade talks with China, however, have the potential to turn negative and damage economic growth both here and abroad.  While the current economic expansion is officially the longest in U.S. history and most observers agree that we are in the late phase of the cycle, there has been little to no evidence that a recession is forthcoming.

The SECURE Act

Congress likes to come up with a catchy acronym prior to any bill actually being given an official name. Hence, we have the new “Setting Every Community Up for Retirement,” or "SECURE" Act, which the U.S. House of Representatives passed very quietly in May by a 417-3 vote. The bill is widely expected to pass the Senate by unanimous consent.

We are watching closely to see if and when the bill becomes law.  If it does, it is a huge potential "game changer" in the financial and estate planning industry.  Following are some of the key provisions of the bill:

• Changing from 70 1/2 years to 72 years the age at which a retirement plan owner must start taking his or her Required Minimum Distributions (RMD's).
• Eliminating the provisions that prevent contributions to IRAs from being made past age 70 ½.
• Most significantly from an estate planning standpoint, the SECURE Act will severely impact all non-spouse beneficiaries of an inherited IRA, and other beneficiaries who qualify as disabled or "chronically ill."  The new law would require that these beneficiaries must withdraw all of the inherited IRA funds (and pay the attendant income tax) within 10 years of inheriting the IRA.  This will essentially eliminate the "stretch-out" provision that currently enables the inheritors of an IRA to maximize its tax-deferred growth on a long-term basis and potentially turn it into a multi-generational asset.

More to come on the SECURE Act…

Summary

With all of the geopolitical forces and unknowns around the world that create volatility in the market, at CWM we continue to emphasize the following:

• Having a well-diversified portfolio that covers all sectors and asset classes for both stocks and fixed income, and which is customized to the owner's specific goals and needs.
• Owning high-quality, low-volatility assets that are managed and rebalanced with optimal tax efficiency.
• Making changes to your asset allocation when there is a fundamental change in your goals and income needs, as opposed to making changes based solely on market conditions.
• Not allowing emotion to dictate investment decisions.  Tune out all of "the noise" that is out there and always remember that proactive decision-making is better than reactive decision-making especially when it comes to investing.
• Do not try to "time the market." 
• Do not "sit on the sidelines" and fail to put your money to work in a prudent, well-diversified and tax-efficient manner.

— Elizabeth D. Swartz

Disclaimer

Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Chesapeake Wealth Management.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his or her individual situation, he or she is encouraged to consult with the professional advisor of his or her choosing. Chesapeake Wealth Management is neither a law firm nor a Certified Public Accounting firm and no portion of the newsletter content should be construed as legal or accounting advice.  A copy of the Chesapeake Financial Group, Inc.’s current written disclosure statement discussing our advisory services and fees is available upon request