Announcer:
It’s time now on KROS for Financial Focus, brought to you by NelsonCorp Wealth Management. The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly. Registered representative securities offered through Cambridge Investment Research, Inc. A broker dealer member, FINRA SIPC. Investment advisor representative, Cambridge Investment Research Advisors, Inc. A registered investment advisor, Cambridge and NelsonCorp Wealth management are not affiliated. Cambridge does not offer tax advice. Now here’s today’s Financial Focus program.
James Nelson:
Good morning and welcome to this week’s Financial Focus program, brought to you each and every Wednesday morning right here on KROS. Well, James Nelson, and John’s joining me today. We gave Nate the week off, and this is our first week back in the studio in the last, I don’t know, two months or so.
John Nelson:
Yeah, nice to be back.
James Nelson:
Yeah. And John’s finally joining us, he hasn’t been up here for quite some time. So nice to be back in the studio and an unfamiliar face on the radio with me this morning.
John Nelson:
Yeah, that’s right. Good to be back and starting to see some things get back to somewhat normal. It’s going to be a long road, I anticipate, from here on out. But back in the studio, happy to be here.
James Nelson:
Well, speaking of a long road, we are about three months off the initial sell off, when this coronavirus really ramped up this year in the stock market. And we’ve had one quarter in the book so far, and we’ve started to see some of this economic data come out. We’re going to hit some of the top points. This is more of just reporting on what’s taken place, our outlook moving forward. But there’s a few key topics. The first big one that’s talked about a lot is the GDP. So the Gross Domestic Product was down 4.8% this first quarter, which is a big move. Generally speaking, the US has been running anywhere between a positive 2% to a positive 4%. The last several years, it’s been pretty consistent to see any negative number is a little bit alarming. Seeing almost a negative 5% is really alarming. And I think all of us kind of saw that coming.
James Nelson:
It’s just going to be interesting to see where that number goes from here. We all know the first quarter was going to be bad. Second quarter’s probably not going to be great either, but it’s really going to be interesting to see where not only the Gross Domestic Product goes, but a lot of these big topics like unemployment, the Fed policy and interest rate, and then of course the overall stock market.
John Nelson:
Yeah, stock and economy, very different, we’ve talked about that often. But not overly surprising with the numbers you reported given that 30 million plus people unemployed at this point, number’s likely going to get worse before they get better. It’s the federal reserve has tried to step in, government intervention is obviously taking place, getting stimulus packages out, talking about second and possibly third waves to this, depending on how long things drag out here. Think the vaccine, there was hope earlier this week that there may be some positive news there, some of that’s been walked back. So we’ll just… Time will tell. We will see how long this plays out, but Feds intervention has been aggressive and have… They’ve moved very quickly on this. That’s that’s a positive standpoint, hopefully trying to stabilize things for the time being. There are certainly longterm implications to that, adding trillions and trillions of dollars to the deficit, but these are unprecedented times and in trying to not only back the stock market, but even more so the bond market, from what we’ve seen the last few months, we’ve never been in these territories.
James Nelson:
No, we’re not. And the recession is a word that’s been thrown around too. I mean, are we in a recession or aren’t we in a recession? And the fact is you don’t know until after the fact. So it takes two quarters of negative GDP to qualify as a recession. Well, I just mentioned that we’ve seen the first quarter of negative growth and there’s a good chance a second quarter is coming, so that would put us in a recession. We very likely are in a recession right now. Now the question is, how long does that last and how deep does it get? We’ve seen the stock market rally back some the last month or so, but again, the volatility just stays here.
James Nelson:
We’ve had big updates and big down days, like John said, Monday was a great day and then yesterday gave some back. So volatility is probably here to stay and just kind of sifting through these numbers and figuring out how it’s going to play out. I mean, there’s been some big winners, the big household names like Amazon and Apple and Microsoft, some of these big tech companies are almost set up to handle a storm like this. And then you look at the flip side of the small restaurants and some of the small businesses locally around here just totally wiped out during a scenario like this. So it’s really going to be interesting to see how this plays out in the stock market. Does this rally continue or do we have another leg down like a lot of people are predicting?
John Nelson:
Yeah, speaking of volatility, just interesting statistic, just looking at oil prices, talk about volatility, within the last three months, three months ago from today, oil was trading roughly $50 a barrel, it went to negative $38 a barrel, to now trading at roughly $30 a barrel all within a three month period. So volatility has been across the board. We’re in territories we’ve never seen before. But as James pointed out, there are a number of companies that are doing quite well or very well through this. You look at Netflix, to add to the list that he had mentioned, companies like that have done extremely well. They’re, I’d say much more limited. This has impacted companies in large part, very negatively.
John Nelson:
But there are big winners, and just looking at the NASDAQ, that’s primarily tech type companies, the Apples, the Microsofts of the world, versus the Dow. There is a 17% spread between where the Dow is today versus where the NASDAQ is. The NASDAQ, obviously leading that by 17%. So there are certain sectors and certain places where there are green numbers and companies are looking good, but that is by no means the majority at this point.
James Nelson:
Well, and I think that goes back to what we always talk about is having an investment plan, having that 17% gap between two major indexes is pretty incredible. And that goes back to knowing what you own. I think a lot of people still are kind of of the mindset, at least a lot of the people that we talked to, the money’s in, nobody’s really managing the 401k dollars, changes aren’t really being made. And you can see right there in a short amount of time, even year to date, the huge difference in owning one index versus another, or a specific sector, tech versus financials or tech versus healthcare. There’s huge gaps and huge disparities between those sectors so far, year to date, and that just goes back to, again, knowing what you own and having an investment plan in place, not only on the buy, but on the sell side of things. And it’s extremely important, if people are kind of flying blind out there, please give us a call, sit down with us, we’d love to review your portfolio and actually explain what you own.
John Nelson:
Yeah, and I think a big takeaway from where we’re going from here is the Fed intervention. Obviously interest rates are still at record lows. We’re going to see that, we anticipate seeing that for some time. They’ve stepped in a big way, again, trying to back the stock and the bond market, hold things together. Time will tell if that works or if it can hold it for a sustained period of time, if this ends up being easily at 12, 18 months. But the Fed’s intervention, how many more ways of money come into this and what does that look like longterm? Interest rates, again, very low levels, good for some people, not great for many others. It’s tough. You look at CD rates, things of that nature, next to nothing right now.
James Nelson:
Yeah. It’s great if you’re buying a vehicle or buying a house, interest rates being low is pretty nice, but not so good if you’re an investor. Again with the CDs or even bonds. I mean, government bonds, you look at government bonds as a whole, the 10 year government bond is under 1%. 0.69% to be exact. I mean, again, those are historic levels. Just to put things in perspective, the German 10 year government bond is negative 46 basis points. So that’s a negative almost half a percent on a government bond, it’s incredible. Just a year or two ago these were at least 2%, 3%. We’re nowhere near those figures anymore.
John Nelson:
You’re guaranteed to get back less money than you put in. And a lot of people ask why would anyone in their right mind invest in something like that? You just have to imagine the view of all other asset classes at that point for someone to take that trade off. They’re willing to take a negative rate of return because everything else just looks so bad.
James Nelson:
Yeah, a guaranteed negative percent backed by their government, yeah. It’s amazing, and again, a lot of those folks are also fearful of going outside their country walls. The-
John Nelson:
Currency risk aspect.
James Nelson:
… currency exchange there is real big, and that’s what they’re fearful of. So anyway, running out of time here again this week. I just want to remind everybody that every Friday NelsonCorp’s wearing jeans for charity. The month of May charity is the Genesis Healthcare Workforce Support, trying to help those front line folks as much as possible. So thanks again for tuning into this week’s program. We’ll catch you next Wednesday morning for a Financial Focus program.
Announcer:
Financial Focus is a production of NelsonCorp Wealth Management in Clinton and Davenport. The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly. Registered representative securities offered through Cambridge Investment Research, Inc. A broker dealer member, FINRA SIPC. Investment advisor representative, Cambridge Investment Research Advisors, Inc, a registered investment advisor. Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. For more information, visit our website at www.NelsonCorp.com.