Marietta Supports Sojourner Family Peace Center

Marietta is committed to continuing our support of nonprofit organizations in the Milwaukee area, especially during this uncertain and difficult time. We thank essential workers for the amazing work they continue to do every day to make our community safe and healthy.

In the first quarter of 2020, the Marietta team has decided to donate funds raised through our Jeans for Charity program to Sojourner Family Peace Center, the largest nonprofit provider of domestic violence prevention and intervention services in Wisconsin. The organization’s primary goals are to “ensure the safety of victims of family violence and provide a pathway out of violence for victims and abusers through opportunities to make positive and lasting changes for themselves and their children.”

The populations that Sojourner serves are even more vulnerable during the COVID-19 pandemic, as many victims have been trapped with their abusers and face increased social isolation. Sojourner has compiled COVID-19 safety resources for those experiencing domestic abuse, and they also offer crucial services, including a 24-hour Domestic Abuse Hotline, emergency shelter, support groups, legal services, and community education.

Marietta is honored to support Sojourner’s critical work in the Milwaukee community and their commitment to families affected by domestic abuse to achieve safety, justice and well-being.

The Economy is not the Stock Market

Stock markets have rallied sharply from the bear market lows reached in late March. Astoundingly, the fastest 30% sell-off ever for the S&P 500 Index was followed by the strongest monthly return in over 33 years, soaring 12.7% in April. This incredible performance occurred while market participants have absorbed a deluge of grim economic data, including the highest unemployment rate since the Great Depression, the highest 8 weekly jobless claims ever recorded, and a wave of companies reporting depressingly low earnings and eliminating future guidance, with a significant uptick in companies filing for chapter 11 bankruptcy. GDP growth rates in the first quarter were sharply negative and estimates for the second quarter are expected to slide even further. It is shocking to many that global stock markets have rebounded so swiftly even as many economies have plunged into recession.

How can a stock market legitimately rise even as an economy falls? To answer this, it is informative to recall the situation at market lows and what has occurred in the seven weeks since.

In March, it was not known if COVID-19 was containable, if millions of patients would overwhelm the health care system, or if the Federal government would be able to respond, given intense partisan bickering and mixed messaging on the severity of the threat posed by the virus. It was unclear if shelter-in-place orders would be effective or how long they would last. Also unclear was the potential impact on the labor market, consumption, and production. The uncertainty was rampant and was reflected in depressed stock markets, as investors sold indiscriminately amid the confusion on how to appropriately value future company earnings.

As the past seven weeks unfolded, significant developments indicated that the worst-case scenarios feared in March had become increasingly unlikely, which supported a meaningful stock market rally. We learned that the social distancing shutdown would be temporary, and that activity would increase as economies slowly reopened. Markets are forward-looking and the prospects for business is considerably better than two months ago. We note:

Despite the hope-inspiring developments cited above, we still live amidst a public health threat and a deep recession. Huge questions remain, including whether a second wave of the virus will occur, what shape the recovery will take, and if stimulus measures will be effective. However, those who wait for certainty on these issues before investing likely will be forced to buy assets at much higher valuations. Investors are best served by adhering to their long-term objectives and remaining committed to appropriate asset allocations. Within the stock market, we recommend that investors focus on quality and those companies that are best able to recover their earnings. We reiterate our view from the beginning of the COVID-19 scare, written in our February 11 blog:

“We expect there will be winning and losing sectors and companies, which could provide an opportunity for active portfolio management to help mitigate portfolio risk and increase returns. The longer the pandemic takes to resolve, the greater the negative impact will be to industries such as travel, autos, oil, some luxury goods, and commodities. Companies with supply chain disruptions should be monitored closely for downward earnings revisions. We recommend caution in “buying the dip” in these industries until the magnitude of the global economic impact is better understood.”

Thus far, this approach has been successful, and we think this trend will continue until the end of the pandemic is in sight. Until then, stay disciplined, vigilant, and most importantly, safe.

Marietta featured on Money Life with Chuck Jaffe

On Monday, May 4, Marietta Partner and Portfolio Manager, Jonathan Smucker, appeared as a guest on the “Money Life with Chuck Jaffe” podcast. Jonathan spoke about Marietta’s approach to investing in the time of COVID-19.

 

Listen to the interview by clicking the play button below:

 

To listen to the full episode on the Money Life with Chuck Jaffe website, click here.

Economic and Financial Market Outlook 2020 Q2

Remarkable developments occurred in the first quarter of 2020: the worst pandemic in over a century spread around the globe at alarming speed, policymakers responded with unprecedented monetary and fiscal stimulus, and national, state, and local governments effectively shut down the global economy in the interest of public health. Equity and credit markets responded with incredible volatility. While the selloff in the S&P 500 Index reached a low on March 23, dropping 35.4% intraday below the February 19 high, the US benchmark index also made historically fast gains, including the strongest one-week advance since March 2009. Of the 22 trading days in March, 21 saw stock market moves of at least 1.0%. When all was said and done, the S&P 500 and Dow Jones Industrial Average each incurred their worst first quarter ever. The bond market also saw unprecedented volatility, with 10-year US Treasury bond yields plummeting from 1.92% to a low of 0.50%, while high yield bonds, measured by the iShares High Yield Corporate Bond ETF (HYG), plunged over 30%. Looking ahead, our outlook is essentially unchanged from the March 20 update: “Stopping the Coronavirus: Putting the Brakes on the Economy.” We maintain that for stability to return to markets, investors need greater visibility regarding COVID-19 and its impact on the economy. At this stage, we can provide some updates to the key questions, but a lack of definitive answers continues to cloud the investment landscape:

COVID-19 has already impacted every US state and over 180 countries with varying ferocity. Globally, new cases are still growing and the timing and severity of peak intensity in the US and abroad remains uncertain. It is somewhat encouraging, however, that a few countries have reported infection rate declines and several more have reported a deceleration in the number of daily new cases.

The White House has recommended all Americans to stay home and 41 states have issued orders to shelter in place except for essential activities. Although these steps thankfully appear to be reducing the spread, in our view, the widespread “stay at home” orders have caused the US to enter recession of unknown duration and turmoil. In the week ending March 28, 5.8 million people applied for unemployment insurance following 2.9 million the week before (the previous highest single-week totaled 695,000 in 1982).

We don’t know how long it will take until the number of active cases is low enough to resume normal activity, or frankly, at what that level is. What we do know is that the longer we remain in some form of lockdown, the more severe the disruption will be to economic activity and the rehiring process.

There is still a long way to go, but progress has been made in addressing shortages of necessary supplies and protective equipment. There have been promising headlines about potential therapeutic advances, but experts warn that an available vaccine will require months more of development. Based on the experience of other countries, the stay at home orders will lift long before we see a vaccine or cure.

Congress and the White House have taken a bipartisan, “whatever it takes” approach to stabilizing the economy, already passing $2 trillion in relief measures, the largest stimulus package in history. Even so, it is not clear whether the initiatives will be effective or if another rescue package will be needed to further protect against economic malaise.

The Federal Reserve has acted stronger and quicker than in 2008, dropping the Federal Funds rate to zero and offering up to $4 trillion in asset purchases to keep financial markets functioning. The usefulness of this massive undertaking is unknown as there has never been such a crisis nor such a response. Through these actions, however, the key policymakers have demonstrated that they are 100% committed to combating a credit crunch.

The exact effect on corporate profits is yet unknown, though we know for certain that the impact will be strongly negative. Factset consensus estimates expect a decline of -4.5% in S&P 500 earnings for 2020, though this number includes outdated forecasts as many research houses have yet to update their projections to reflect current conditions. Goldman Sachs has attempted to produce relevant estimates, and now expect 2020 full-year S&P 500 profits to fall 33%. Companies especially hurt by the virus are expected to cut their dividends in the second quarter, including 21 in the S&P 500, and many more share repurchase plans have been suspended.

We normally view bonds as a stable, income-generating asset. US Treasuries remain very safe, though their yields dropped to record lows in the first quarter. Corporate and municipal bonds have not been a good income source due to low yields and now we see increased credit risk during these trying economic times. We recommend holding to maturity high-quality bonds, which should still provide portfolio stability, whereas lower-quality bonds have been severely punished during the crisis. In addition, we recommend staying short-term in duration, as reaching for yield by going further out in duration will lock in yields for years near record lows.

The situation remains in flux and new information emerges hourly. We are encouraged by some recent developments but clearly do not have the answers to know when the crisis will pass. Investors must accept that there is an abnormally large range of possible short-term outcomes and they should monitor closely developments and the changing probability of various scenarios.

We will get through this eventually. May all our readers stay healthy, safe, and in good spirits!

Stopping the Coronavirus: Putting the Brakes on the Economy

As the world confronts the unprecedented threat of the coronavirus (COVID-19) outbreak, Marietta’s Economic & Financial Market Outlook must be completely overhauled. The difficulty in providing a useful and specific update is that these are uncharted waters with no equivalent historical references. Any current forecast contains assumptions that could be outdated in hours, as economic and medical data rapidly update and stimulus measures are announced. Amid this uncertainty, our focus is on the major questions that need to be addressed before markets stabilize:

The task of investors is not to press forward with rigid statistical predictions regarding GDP and the S&P 500 Index. In other words, this is a time to avoid being locked into an inflexible strategy. Rather, investors must accept that there is an abnormally large range of possible outcomes and they should monitor closely developments and the changing probability of various scenarios.

Despite the cloud of uncertainty, we offer several observations…

The news is likely to get worse before it gets better. However, at some point the panic will subside. For a stock market recovery to begin, investors need more certainty on two fronts:

We think the recovery will begin well before the virus is eradicated. The country has mobilized to fight a war against COVID-19. In this vein, stock markets will rise when we see a turn of fortune and start winning the war. Fortunately, there is a roadmap to stopping the acceleration of new cases and relieving pressure on the healthcare system. The strategy is twofold: mass testing and physical isolation. This has worked in other countries that have passed the worst of the spread of new cases. There is a downside, however: isolation causes a severe decline in economic activity. Policymakers have made the rare decision to sacrifice economic growth in order to protect the public health. Short-term volatility in financial markets will occur due to the efficacy of policies aimed at lowering the strain on the healthcare system, both to the upside and the downside.

The immediate financial impact of mass isolation is drastic. For a recovery to begin, investors need assurance that these short-term economic consequences do not balloon to become a more pronounced structural decline. Federal Reserve action has been a good start but will not be enough. To stem the tide of this calamity, fiscal stimulus must occur on two levels: individuals need money to live and businesses need access to capital to survive. The US consumer has been the beating heart of the global economy. Yet a recent survey revealed that 69% of Americans have less than $1,000 in savings and 45% of Americans have no savings at all. People living paycheck to paycheck need relief, as they cannot work due to mass closures and thus are not receiving paychecks. In addition, small businesses have shuttered their doors, yet still have bills to pay. With no customers, they need access to capital to survive. A large fiscal package targeted at small businesses and individual families would go a long way to help people get through this difficult situation and would give investors confidence that the economy will avoid a huge spike in unemployment, bankruptcies, and other disastrous impacts of recession.

We, as a country, will overcome the threat of COVID-19 and get back on our collective feet. Investors should keep in mind their time horizon, as long-term returns have been very positive following past selloffs of this magnitude. Portfolios should be monitored carefully to ensure that they will continue to meet income needs and capital preservation goals. Proactive investors should consider taking steps to position the portfolio for a post-corona world while avoiding those industries likely to exhibit lingering problems due to the global response. Stay calm and stay healthy friends.

COVID-19 Operations Update

As the country responds to the COVID-19 outbreak, Marietta would like reassure our clients and partners that we remain fully operational.

Out of an abundance of caution, however, we have asked all employees to work remotely effective immediately and until further notice. For circumstances such as these, Marietta has established and tested procedures that enable us to operate outside the office both securely and at full capacity. We do not expect service interruptions at this time but will continue to share updates as the situation evolves.

If you have any questions, please do not hesitate to reach out.

We hope you and your loved ones are safe in this unprecedented time.

Marietta Sponsors Young Nonprofit Professionals Network Event

Marietta was honored to be a sponsor of the Young Nonprofit Professionals Network (YNPN) of Greater Milwaukee and their annual kickoff event, Vision2020, which was held at Arts@Large on March 12. YNPN helps emerging and young professionals enhance the nonprofit sector. Marietta is proud to support YNPN Greater Milwaukee and their vision to connect professionals and strengthen the community through educational and networking events. Marietta’s Operations Specialist, Julia Smucker, also serves on the YPNP board and events committee.

Marietta Supports Feeding America

In the fourth quarter of 2019, Marietta raised funds for Feeding America (Eastern Wisconsin) through our Jeans for Charity program. 1 in 10 people face hunger in eastern Wisconsin, and 1 in 5 children in Milwaukee don’t have enough to eat. Feeding America is working to combat these statistics as the leading hunger-relief organization in the state. They develop innovative solutions to improve the health of our communities, organize outreach programs, and partner with retailers and local growers to supply healthy, fresh produce to those who face hunger.

The Marietta team also volunteered our time outside of work hours at Feeding America’s warehouse on Saturday, January 25, where we spent the morning sorting and checking the quality of donated goods to be shipped to food pantries. We are honored to support Feeding America’s vision of solving hunger and creating access to nutritious food.

Does the Coronavirus Change the Outlook?

During a very eventful start to 2020, the world’s attention has been set on the serious and significant spread of the Coronavirus. A contagious, life-threatening respiratory disease, it has infected nearly 50,000 people worldwide and has killed over 1,000 people, the majority in mainland China. While our focus here is the potential economic and financial market impact of the Coronavirus, we do not want to leave unacknowledged the reality that humans are suffering. Our hearts go out to the families and loved ones who have been affected by this tragedy.

Even disease experts acknowledge that it is irresponsible to make a forecast on how long the outbreak will last, how far it will spread, and what the ultimate economic impact will be. What we do know is the Coronavirus is serious enough that a few large Chinese cities are on lockdown, some companies with factories in Wuhan are suspending operations, and several countries are enforcing travel bans to and from China. When the world’s second largest economy undergoes a disruption of this magnitude, global growth will slow. The degree to which this will impact US growth will depend on unknown future developments.

The response of financial markets has been mixed. Taking into account this problematic outlook, commodity prices have fallen. Year to date, WTI crude oil has plummeted -17.5%, copper -8.4%, and iron ore -10.8%. Likewise, the economy-sensitive S&P 500 energy and materials sectors have dropped -10.1% and -2.2% respectively, and emerging market stock markets, measured by the iShares MSCI Emerging Markets ETF, the EEM, have dropped -3.4%. On the other hand, the S&P 500 Index as a whole has continued its upward march, rising 3.2%, with technology, communication services, and utilities outperforming.

Marietta’s most recent Economic and Financial Market Outlook (January 10) was modestly optimistic based on cooling trade tensions, easy monetary policy, a strong US consumer, a return to corporate profit gains, and a global growth rebound that would reduce recession fears. Thus far, these core fundamentals remain unchanged: trade tensions continue to diminish, monetary policy remains supportive of growth, corporate earnings are still expected to rise, and US consumer spending has been relatively unimpeded by the Coronavirus. We no longer project a global growth rebound, but we continue to think that recession fears will stay low, provided a significant outbreak does not reach US shores. Thus, our outlook is relatively intact and supports the case for higher global stock markets.

We expect there will be winning and losing sectors and companies, which could provide an opportunity for active portfolio management to help mitigate portfolio risk and increase returns. The longer the pandemic takes to resolve, the greater the negative impact will be to industries such as travel, autos, oil, some luxury goods, and commodities. Companies with supply chain disruptions should be monitored closely for downward earnings revisions. We recommend caution in “buying the dip” in these industries until the magnitude of the global economic impact is better understood. Even if the virus is contained quickly, companies should be reevaluated in the context of a slower than expected global economy. We will be tracking developments closely, especially regarding a potential disruption to US consumer spending. We all wish for a swift end to this serious threat.

Marietta’s Tips to Avoid Fraud on CBS 58

Good due diligence is going to be the antidote to fraud…the more questions you ask, the better.

Marietta’s Portfolio Manager and Partner, Mary Allmon, was featured on CBS 58 discussing the importance of protecting yourself when working with an investment advisor. Following a recent Ponzi scheme committed in the Madison, Wisconsin area, CBS 58’s Brittany Lewis sought out Mary to provide viewers with guidance for avoiding investment fraud.

Click here for the full CBS 58 report.

As an Independent Registered Investment Advisor of 20 years, Marietta takes due diligence and client security very seriously. We have compiled the guide below to offer recommendations on how to avoid fraud.

1.) What do people need to be cautious of when investing? 

Watch out for Red Flags:

2.) How can people protect themselves from becoming victims of an investment fraud scheme? 

3.) How can investors tell that the account statements they are receiving are real and not fictitious?

4.) What are some other documents people should ask for when investing? 

5.) What are some “tough questions” investors should be asking when investing money?