The End of the Beginning
As a theme, “a light at the end of tunnel” is threaded through these weekly updates and events of last week presented some shimmers. We are nearing the end of one tunnel—the end of the beginning—only to enter another and, perhaps, yet another, until coronavirus recovery is attained. Managing a strategic balance of maintaining shelter-in-place requirements and reopening the economy is the monumental challenge facing both our elected leaders and business decision makers. Driven by scientific data and testing, some states are planning a first stage of reopening as early as May 1. We applaud the optimism and the desire to restart our economy. We urge caution as the process begins.
In today’s Market Update, we dig deeper into understanding market forces. This material is presented solely for informational purposes and is not to be taken as an investment recommendation. As a Wealth Advisor, we carefully construct client investment portfolios based on specific goals, respective timeframes, and the “sleep factor” (how much risk one is willing to assume); all of this information is documented in each client’s financial GPS.
Harbingers of What’s to Come?
Let’s start with banks.
Jamie Dimon, CEO of JP Morgan, reported that given the likelihood of “a fairly severe recession,” the bank set aside a total of $8.3 billion to cover potential credit losses attributed to Covid-19. As a result, the bank’s earnings for the first three months of 2020 were down 69%. Mr. Dimon also reported that JP Morgan is actively supporting the CARES Act Paycheck Protection Program (PPP), lending ~$8 billion to small businesses as of April 12.
On a regional front, William Demchak, CEO of PNC Financial, indicated the bank’s total provisions to cover potential credit losses attributed to Covid-19 were increased to over $1.6 billion. Earnings for the first quarter declined 25.3%.
Mr. Demchak also relayed that since its launch on April 3, PNC has processed over 75,000 applicants through its PPP portal, representing north of $6 billion in loans.
So, to be clear, the bankers are telling us to expect that a significant number of businesses and individuals will be unable to meet their debt obligations. We should not be surprised by this news.
Away from the banks, Boeing and Gilead Sciences provided positive news. Boeing announced plans to resume aircraft production in the Seattle area as early as Monday. Boeing is an important lynchpin in the airline and defense industries. A Boeing collapse would lead to significant business failures across the U.S.; we are very happy to see Boeing stabilize. News leaked that Gilead’s drug, remdesivir, was showing early signs of success against Covid-19 in severely ill patients. This news was not distributed by the company nor were the test results widely confirmed. The media and the markets, both hungry for good news, ran with the potential for a life-saving cure. Gilead led the stock market higher on Friday after the news leaked prior to the market opening.
An April 8 publication from the Federal Reserve Bank of St. Louis reported the following:
In 2012, the U.S. trade deficit of medical equipment was roughly 7%. By 2018, it had increased to approximately 14%. This increase in reliance is proving to be a challenge for the U.S., as we are in the middle of a global pandemic and other countries might currently be reluctant or even unable to export equipment that they need to fight Covid-19 domestically. U.S. policies aimed at increasing domestic production of medical equipment to combat global pandemics are critical, as the EU is fighting its own outbreaks and China is overstretched as a supplier to other countries.
We are grateful to all front-line responders whose efforts have helped to close the gap between equipment needed vs. available. We are equally grateful to everyone who helped to reduce the pain and suffering being experienced by so many of our fellow citizens. We truly are all in this together.
What Does This Mean to You?
This Market Update is loaded with detail we hope you will find valuable and assuring during this period of grave uncertainty. We spend hours studying the vast available information so that we are better able to make informed decisions consistent with each client’s objectives. PWA is entirely independent in its thinking. As a fiduciary, we do not receive commissions or any form of compensation other than the fees we are paid by our clients.
Bottom line: We are a company of people taking care of people. The news changes daily. Fear levels rise and fall. Our goal remains constant: We are here to lead our clients on the path of financial security.
Thank you for your continued confidence.
Joseph A. Scarpo CEO
with contribution from
PWA Wealth Advisor