Drilling Into Soaring Energy Prices

If you gassed up your vehicle or paid your energy bill recently, you probably noticed energy prices are soaring. AAA reported the national average for a gallon of regular gasoline was $3.41 on November 14th, up 60% from $2.13 one-year ago. Natural gas cost $4.79 per million British thermal units on November 12th, up 70% from $2.82 one-year ago. Soaring energy prices are starting to impact the economy. U.S. consumer prices rose +6.2% year-over-year during October, the fastest pace since late 1990. In turn, rising inflation pushed consumer confidence to a decade low.

Why are energy prices soaring? Current prices are not the result of a single demand or supply shock but rather the result of a combination of supply and demand factors converging. On the supply side, oil and natural gas investments declined after energy prices collapsed during 2014 and 2015. Since then, investors have pushed oil drillers to return capital to shareholders rather than reinvest in new energy production. Reduced oil and gas drilling capacity has left supply vulnerable to demand shocks like we are seeing today as demand recovers quicker than expected after the pandemic.

Where do energy prices trade from here? Forecasting energy prices is a difficult task, which is why we looked back at prior periods of soaring energy prices to understand what may happen next. Using weekly prices since 1990, gasoline prices fell by an average of -3% over the next 12 months after rising more than 60% year-over-year. Likewise, natural gas prices fell by an average of -24% over the next 12 months after rising more than 70% year-over-year. This does not mean energy prices cannot go higher, because they certainly can. However, it does suggest the worst may be behind us if energy supply and demand can move back toward equilibrium.

The information contained in this document is intended to provide general information for educational purposes. While all information contained in this document is believed to be accurate, PFG makes no guarantees regarding the accuracy of the information provided. No information provided in this document should be interpreted as a recommendation of securities. Investment advice will only be given after a client engages our services by executing the appropriate investment services agreement and shall be subject to the terms and conditions therein.

Required Minimum Distributions – Not Required This Year But Should You Take It?

We recently saw a humorous quote stating that they “missed precedented times.” 😊 That is so true as we come near the end of 2020. There will be plenty of reflection that occurs for years to come. Hopefully, many good things can be remembered. 

November is an excellent time to think about pre-planning. It’s a great time to look at strategies for reducing taxes before December 31st. Every year at this time we start talking with clients about their required minimum distributions (RMD). By definition, this is the amount of money that must be withdrawn from a traditional, SEP, or Simple IRA account and qualified plan participants of retirement age. The original starting age was 70 ½ and has now been changed to age 72. Earlier this year, Congress waived the required minimum distributions. 

Even though participants do not have to take it, here are a few reasons some may consider it: 
• Low income and low tax bracket – If your income for 2020 is in a low tax bracket, it may be wise to consult with your accountant and see how much money can be withdrawn from your tax deferred account with little or no taxes at all. If the funds are not needed for spending, then they can be transferred into a brokerage account and managed. If every year for your tax return you pay no taxes at all, then this might be something to investigate. 
• Converting funds to a Roth – There are times where taking funds from the IRA and converting them to a Roth is extremely beneficial and this year may be the best time. When funds get converted, they show as income but stay in a retirement account and grow tax free. In traditional years, a Roth conversion is not allowed for RMD. In addition, those funds can then be withdrawn tax free if the Roth has been opened for 5 years or more. 
• A known increase in taxes next year – If there is a known increase in income such as a sale of a business, an expected pay increase, or the potential of rental income from a property for 2021 and it will influence the tax bracket, then taking the RMD this year may be best.
• A higher RMD next year – If it is expected that the RMD is going to be much higher next year because none was taken this year, this is another reason.  As a reminder, the RMD for each year is based off the December 31st value from the previous year and then it is calculated.  

These are only a few reasons why taking the RMD could be considered.  As always, we encourage you to consult with your accountant and your advisor to collaborate and come up with your best tax option for 2020. 

At PFG Private Wealth Management, we thank you for your trust in us and encourage you to be safe. 

PFG Private Wealth Management, LLC is a registered investment adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. This material and information are not intended to provide tax or legal advice.  Investments involve risk and, unless otherwise stated, are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.  Insurance products and services are offered and sold through individually licensed and appointed insurance agents. 

What You Need to Know About the Stock Market During A Presidential Election Year

Presidential election years bring a lot of uncertainty and stress. And that’s not just for the candidates who are running.

In fact, during the 2016 election cycle, one study found that at least 50% of Americans were more stressed out because of the election. And this was true across all party lines.1

So, why does that matter?

Because stressing about election uncertainty can affect your mindset and trigger emotional investing decisions.2

The good news is that you can avoid the frenzy around the upcoming election—and the stress and poor financial choices that may come with it—if you know the facts about the markets during presidential election years. Knowing these facts can help you keep a level head no matter what the outcome of the next election is.

7 Facts About Markets In A Presidential Election Year

Don’t Let the Election Frenzy Derail a Good Investment Strategy

It’s no secret that presidential election years are uncertain times—and that investors and the stock market like certainty.

It’s also no secret that the stock market is influenced by several factors—and that a presidential election may not even be the most significant one.3

Of course, it can be easy to get caught up in campaigns, politics, and elections. And they do matter. Just not as much as you may think when it comes to investing.

Unfortunately, too many people let ideas about who could win office—and what they’ll do when they get there—run wild. And that can mean more stress and anxiety that overshadow sound investment choices and strategies.

In the end, stressing about the “what ifs” of the election just isn’t productive. As portfolio managers, we have seen how elections can fuel investors’ stress and lead them astray when it comes to their financial choices and their long-term goals. We also know how helpful it can be to have a sounding board when emotions run high. That’s why we’re here.

So, while the excitement of the election can be great inspiration to vote, don’t let it drive your investment choices. And, remember, whatever happens on November 3, 2020, life will go on. Instead of stressing about the “what ifs,” give us a call. We are here to support you, and we can help you create a personal financial strategy for the election year and beyond.

1 – https://www.apa.org/news/press/releases/stress/2016/presidential-election.pdf
2 – https://www.npr.org/sections/thetwo-way/2016/10/15/498033747/survey-says-americans-are-getting-stressed-by-the-elections
3 – https://www.hartfordfunds.com/practice-management/client-conversations/10-things-you-should-know-about-politics-and-investing.html
4 – https://www.hartfordfunds.com/practice-management/client-conversations/10-things-you-should-know-about-politics-and-investing.html
5 – https://insight.factset.com/third-year-after-presidential-election-charm-for-sp-500
6 – https://www.usatoday.com/story/money/2019/11/05/election-2020-how-does-stock-market-perform-election-year/4165271002/
7 – https://www.kiplinger.com/article/investing/T043-C008-S003-how-presidential-elections-affect-the-stock-market.html
8 – https://www.capitalgroup.com/individual/planning/investing-fundamentals/presidential-election.html

PFG Private Wealth Management, LLC is a registered investment adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. This material and information are not intended to provide tax or legal advice.  Investments involve risk and, unless otherwise stated, are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents. 

Is The Sky Really Falling?

“Record Economic Plunge”1
“Second-Quarter GDP Plunged by Worst-Ever 32.9%”2
“U.S. Economy Contracted at Record Rate Last Quarter”3
It sure sounds like the sky is falling.

Is it really? Let’s take a step back and put the news in perspective.
The coronavirus shutdown thumped the economy, businesses, and workers badly over the last two quarters, and it’s uncertain how quickly we’ll recover.
We knew that Q2 GDP numbers (Gross Domestic Product) were going to be horrible. In fact, in May, the Federal Reserve thought they were going to be even worse.4
So, ~33% down is actually better than expected.
But, despite the headline, we didn’t actually “lose” 33% of economic production last quarter. The Commerce Department reports data on an “annualized” basis to make it easier to compare; so, if you looked at it quarter-over-quarter, the economy lost 9.5% since Q1.5

That’s still an eye-watering blow to the economy, but it’s not an apocalypse.
The largest contributing factor to the economic losses was a steep drop in personal spending, particularly on services, which makes complete sense in a shutdown.6
Three points before we move on:

  1. This is an advance estimate for Q2, and we will see revisions as more data is finalized.
  2. Though this is the sharpest drop in the shortest time in history, it was caused by the shutdown, and we’re already climbing out of it.
  3. 63.8% of economists think Q3 is when we’ll see the recovery really pick up steam, and the current forecast is for 15.2% annualized growth this quarter.7

So, what’s up with markets?
We think markets are being driven by a few big trends.
In a previous note, we mentioned what a Nobel-laureate economist calls “FOMO mania” by investors who fear missing out on the bounce. We think that’s still in effect as investors continue to pile into stocks, especially in the tech sector.8
We also think the market is being supported by massive government spending and Federal Reserve intervention.
And thirdly, we think a lot of traders are betting heavily on the recovery. If states have to shut down again, the collective delusion may collapse and trigger a correction. We’re watching for that.

How long will the rally last? That’s anyone’s guess. We’ve seen many cheerful forecasts predicting new all-time-highs. We’ve also seen plenty dolefully predicting the next crash.
With so much unknown, they’re all guesses. Even in less-murky circumstances, the market gurus are only accurate about 47% of the time.9
So, since we can’t predict what’s going to happen in Q3 and Q4, we’re staying agile and focusing on the fundamentals of good planning.

We know, it’s a really boring answer. But that’s how we give ourselves the best opportunity for success in chaotic times

We thank you for your trust and look forward to continuing to serve  you. If you have specific questions regarding your account, please contact your advisor. 

P.S. Apple recently announced a four-for-one stock split.10 Here’s what that means: Stock splits are “cosmetic,” meaning they don’t change anything fundamental about the company. Splits just make the stock more accessible to investors by lowering the price (like getting four quarters for a dollar). If you currently own Apple stock, you’ll receive three more shares for every share you own in late August. Have questions about it? Let us know.
1https://www.chicagotribune.com/business/ct-biz-us-economic-plunge-20200730-t25tj4pzdvcmrirdufstpla2nm-story.html
2https://www.cnbc.com/2020/07/30/us-gdp-q2-2020-first-reading.html
3https://www.wsj.com/articles/us-economy-gdp-report-second-quarter-coronavirus-11596061406
4https://www.newyorkfed.org/research/policy/nowcast
5https://www.washingtonpost.com/business/2020/07/30/did-third-economy-really-vanish-just-three-months/
6https://www.cnbc.com/2020/07/30/us-gdp-q2-2020-first-reading.html
7https://www.wsj.com/graphics/econsurvey/
8https://www.cnbc.com/2020/07/28/paul-krugman-sees-mania-by-stocks-investors-driven-by-fomo.html
9https://www.cxoadvisory.com/gurus/#aggregate
10https://www.cnbc.com/2020/07/30/apple-just-announced-a-stock-split-heres-what-that-means-for-investors.html

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance does not guarantee future results.
This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. The content is developed from sources believed to be providing accurate information; no warranty, expressed or implied, is made regarding accuracy, adequacy, completeness, legality, reliability or usefulness of any information. Consult your financial professional before making any investment decision. For illustrative use only.
Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

PFG Private Wealth Management, LLC is a registered investment adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. This material and information are not intended to provide tax or legal advice.  Investments involve risk and, unless otherwise stated, are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.