Oil/Bond Yields/Coronavirus/Federal Reserve…… A Ton Going On!

The OPEC, Organization of Petroleum Exporting Countries, includes 14 countries (Saudi Arabia, Iran, Iraq, Venezuela and others).  The OPEC recommended a decrease in oil production as demand has decreased because of the Coronavirus.  Russia immediately rejected the recommendation.  Saudi Arabia, in retaliation, announced they will increase production from 9.7 Million barrels per day, up to 12 Million.  This news has our stock market futures, (I’m writing this around 9:15am), down significantly.

Oil was down to $41.28/barrel last Friday from $61.06 at the start of the year.  This morning oil is trading down to the low $30’s.

Bond Yields Plummet

This news has pushed US Treasury Yields down further in record territory.  Our 10 Year is yielding .43% as of this writing.  Our 30 Year is now yielding less than 1%, I believe for the first time ever, at a yield of .87%.  Are negative US interest rates in the cards?  Hard to say “no way!”

Coronavirus and Oil

The Coronavirus on its own is a significant economic issue, however by itself, I believe it will be dealt with and we will move forward (with some bumps). Add in the Oil issue…. and if it doesn’t reverse quickly, this is significant.  You will certainly enjoy paying less at the gas pump, however there are other potential far-reaching issues.  Oil companies borrow money from banks and use their Oil reserves as collateral.  As the price of oil plummets, so does the value of their collateral, causing their debt to lose value, which can cause a domino effect.  Stay tuned for more as this unfolds… or hopefully does not!

Federal Reserve

Last week, now seems far in the past, our Federal Reserve did announce a rate decrease, prior to the next upcoming meeting in Mid-March.  This certainly signals the Fed is concerned, and many are expecting an additional decrease at the actual March meeting.

Markets Last Week

Last week witnessed the major averages having a few 4% plus daily swings up and down.  Crazy trading weeks for stocks!  For the week, the Dow Jones rose 1.39%, the S&P 500 rose .61%, and the Nasdaq inked out a gain of .10%.  The Russell 2000 however declined by (1.84%).

For 2020, the Dow Jones is down (9.37%), the S&P 500 (8.00%), the Nasdaq (4.42%) and the Russell 2000 (13.14%).

Bonds that comprise the Barclays Aggregate Bond Index rose 1.88% leaving that index up an amazing, and surprising, 5.71% for the Year.

Investment Positioning

I will continue to mention the importance of having your investment assets properly aligned to your current and future income needs.  If you are already retired or quickly approaching, your assets should already be in position.

Even having your assets properly positioned and diversified does not mean you won’t see the value of your portfolio decrease in value.  With proper asset allocation, your value should drop much less than the market and the money you’ll be consuming now, should already be out of harms way.

Many of the experts suggest a 60% stock and a 40% Bond weighting for conservative investors who are retired.  I actually believe that is the maximum equity % weight for retirees.

Your asset allocation should be developed in conjunction with a thorough analysis of your current and future income needs.

Election Update

It certainly now appears that former Vice President Biden has the advantage going into tomorrow’s important Super Tuesday Primary.  Sanders has to really surprise to the upside if he still desires the nomination.  The day after Biden took the lead, the stock market went up 4%, having some people suggest it’s a relief from the policies Sanders would have backed.

Assuming it is Biden, my next question is, who will he pick to run with him?

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Paul Levin CFP®, ChFC®, RICP®

Retirement Income Certified Professional®