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Consolidated Appropriations Act Provides Relief to Individuals and Businesses

The $900 billion emergency relief package represents a bipartisan effort to assist individuals and businesses during the ongoing coronavirus pandemic and accompanying economic crisis.

What you need to know about the Consolidated Appropriations Act 2021

On Sunday, December 27, 2020, the Consolidated Appropriations Act, 2021 (CAA 2021) was signed into law. A $900 billion emergency relief package is included as part of this omnibus spending bill. It is intended to assist individuals and businesses during the ongoing coronavirus pandemic and accompanying economic crisis. Major relief provisions are summarized here, as well as some additional tax provisions.

Unemployment provisions

The legislation provides an extension to expanded unemployment benefit assistance (although at a lower amount):

  • An additional $300 weekly benefit to those collecting unemployment benefits, through March 14, 2021
  • An additional 11-week extension of federally funded unemployment benefits for individuals who exhaust their state unemployment benefits
  • Targeted federal reimbursement of state unemployment compensation designed to eliminate state one-week delays in providing benefits (allowing individuals to receive a maximum 50 weeks of benefits)
  • Unemployment benefits through March 14, 2021, for many who would not otherwise qualify, including independent contractors and part-time workers

Recovery rebates

Most individuals will receive another direct payment from the federal government. Technically a 2020 refundable income tax credit, the rebate amount will be calculated based on 2019 tax returns filed and sent automatically via check or direct deposit to qualifying individuals. To qualify for a payment, individuals generally must have a Social Security number and must not qualify as the dependent of another individual.

The amount of the recovery rebate is $600 ($1,200 if married filing a joint return) plus $600 for each qualifying child under age 17. Recovery rebates are phased out for those with an adjusted gross income (AGI) exceeding $75,000 ($150,000 if married filing a joint return, $112,500 for those filing as head of household). For those with AGIs exceeding the threshold amount, the allowable rebate is reduced by $5 for every $100 in income over the threshold.

Rebate Amounts and Phaseout Ranges
Filing StatusPayment AmountPhaseout ThresholdPhaseout Completed
Married Filing Jointly$1,200$150,000$174,000
+ 1 Child$1,800$150,000$186,000
+ 2 Children$2,400$150,000$198,000
Head of Household$600$112,500$124,500
+ 1 Child$1,200$112,500$136,500
+ 2 Children$1,800$112,500$148,500
All Others$600$75,000$87,000

Business relief

  • The employee retention tax credit has been extended through June 30, 2021. It is available to employers that were significantly impacted by the crisis and is applied to offset Social Security payroll taxes. As extended, the credit is increased to 70% of qualified wages, up to a certain maximum per quarter.
  • Paycheck protection program (PPP) loans have been extended and the allowable uses (eligible expenses) of the loan expanded. A PPP loan amount can be forgiven for paying certain expenses, and such amount is not included in income. It is clarified that no deduction will be denied, no tax attribute reduced, and no basis increase denied by reason of the exclusion from gross income.
  • Repayment of employee payroll taxes deferred in 2020 was originally scheduled for the period January 1, 2021, through April 30, 2021. The period for repayment has been expanded to January 1, 2021, through December 31, 2021.
  • The employer tax credit for providing emergency sick and family leave has been extended through March 31, 2021.
  • A full deduction is now allowed for business meals provided by a restaurant for expenses paid or incurred in 2021 and 2022.

Rent relief

  • The legislation allocates funds to state and local governments to provide emergency rental assistance through December 31, 2021.
  • The legislation extends an eviction moratorium originally issued by the Centers for Disease Control and Prevention, but only through January 31, 2021.

Charitable giving

Enhancements to the normal charitable gifts deduction rules in 2020 have been extended through 2021.

  • For those who itemize deductions, the limit on the charitable gifts deduction has been increased to 100% of AGI for direct cash gifts to public charities.
  • For nonitemizers, a $300 (increased to $600 in 2021 for joint returns) charitable deduction for direct cash gifts to public charities is available (in addition to the standard deduction).

Other tax provisions

The floor for deducting medical expenses has been permanently lowered to 7.5% of AGI (it was scheduled to increase to 10% in 2021).

Starting in 2021, the deduction for qualified tuition and related expenses has been repealed. To make up for it, the modified adjusted gross income (MAGI) phaseout range for the Lifetime Learning Credit has been increased to be the same as the phaseout range for the American Opportunity Tax Credit.

A number of provisions that are periodically extended (often a year at a time) have been extended through 2025, including:

  • The exclusion from gross income of discharge of qualified principal residence indebtedness
  • The employer credit for paid family and medical leave
  • The exclusion from income for certain employer payments of student loans

A number of other provisions have been extended (generally through 2021), including:

  • The treatment of mortgage insurance premiums as qualified residence interest for purposes of the interest deduction
  • The energy efficient home credit

IMPORTANT DISCLOSURES The opinions expressed herein are those of Ballast Advisors, LLC and are subject to change without notice. The third-party material presented is derived from sources Ballast Advisors consider to be reliable, but the accuracy and completeness cannot be guaranteed. Past performance is not indicative of future results. Nothing contained herein is an offer to purchase or sell any product. This material is for informational purposes only and should not be considered investment advice. Ballast Advisors reserve the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice. Ballast Advisors, LLC is a registered investment advisor under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about the firm, including its services, strategies, and fees can be found in our ADV Part 2, which is available without charge upon request.

The Shape of Economic Recovery

The Shape of Economic Recovery Most economists believe that GDP will turn upward in the third quarter, but it will take sustained growth to return the economy to its pre-recession level. On June 8, 2020, the National Bureau of Economic Research (NBER), which has official responsibility for determining U.S. business cycles, announced that February 2020 … Read more

Watch Out for Coronavirus Scams

Mad young female annoyed with scam or spam messages on smartphone, frustrated woman receive bad news on cell, confused girl get phone problems having no signal, bothered with not working device

The FTC has received over 20,000 COVID-19 related complaints since January 1, 2020. Source: Federal Trade Commission, April 2020

Fraudsters and scam artists are always looking for new ways to prey on consumers. Now they are using the same tactics to take advantage of consumers’ heightened financial and health concerns over the coronavirus pandemic. Federal, state, and local law enforcement have begun issuing warnings on the surge of coronavirus scams and how consumers can protect themselves. Here are some of the more prevalent coronavirus scams that consumers need to watch out for.

Schemes related to economic impact payments

The IRS recently issued a warning about various schemes related to economic impact payments that are being sent to taxpayers under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.1 The IRS warns taxpayers to be aware of scammers who:

  • Use words such as “stimulus check” or “stimulus payment” instead of the official term, “economic impact payment”
  • Ask you to “sign up” for your economic impact payment check
  • Contact you by phone, email, text or social media for verification of personal and/or banking information to receive or speed up your economic impact payment

In most cases, the IRS will deposit the economic impact payment directly into an account that taxpayers previously provided on their tax returns. If taxpayers have previously filed their taxes but not provided direct-deposit information to the IRS, they will be able to provide their banking information online at irs.gov/coronavirus. If the IRS does not have a taxpayer’s direct-deposit information, a check will be mailed to the taxpayer’s address on file with the IRS. In addition, the IRS is reminding Social Security recipients who normally don’t file taxes that no additional action or information is needed on their part to receive the $1,200 economic payment — it will be sent to them automatically.

Fraudulent treatments, vaccinations, and home test kits

The Federal Trade Commission is tracking scam artists who are attempting to sell fraudulent products that claim to treat, prevent, or diagnose COVID-19. Currently, the U.S. Food and Drug Administration (FDA) has not approved any products designed specifically to treat or prevent COVID-19.

The FDA had warned consumers in March to be wary of companies selling unauthorized coronavirus home testing kits. On April 21, 2020, the FDA authorized the first coronavirus test kit for home use. According to the FDA, the test kits will be available to consumers in most states, with a doctor’s order, in the coming weeks. You can visit fda.gov for more information.

Phishing scams

Scammers have begun using phishing scams related to the coronavirus pandemic in order to obtain personal and financial information. Phishing scams usually involve unsolicited phone calls, emails, text messages, or fake websites that pose as legitimate organizations and try to convince you to provide personal or financial information. Once scam artists obtain this information, they use it to commit identity or financial theft. Be wary of anyone claiming to be from an official organization, such as the Centers for Disease Control and Prevention or the World Health Organization, or nongovernment websites with domain names that include the words “coronavirus” or “COVID-19,” as they are likely to be malicious.

Charity fraud

Many charitable organizations are dedicated to helping those affected by COVID-19. Scammers often pose as legitimate charitable organizations in order to solicit donations from unsuspecting donors. Be wary of charities with names that are similar to more familiar or nationally known organizations. Before donating to a charity, make sure that it is legitimate and never donate cash, gift cards, or funds by wire transfer. The IRS website has a tool to assist you in checking out the status of a charitable organization at irs.gov/charities-and-nonprofits. Protecting yourself from scams Fortunately, there are some things you can do to protect yourself from scams, including those related to the coronavirus pandemic:

  • Don’t click on suspicious or unfamiliar links in emails, text messages, and instant messaging services.
  • Don’t answer a phone call if you don’t recognize the phone number — instead, let it go to voicemail and check later to verify the caller.
  • Never download email attachments unless you can verify that the sender is legitimate.
  • Keep device and security software up-to-date, maintain strong passwords, and use multi-factor authentication.
  • Never share personal or financial information via email, text message, or over the phone.
  • If you see a scam related to the coronavirus, be sure to report it to the FTC at ftc.gov/complaint.

1 Internal Revenue Service, IR-2020-64, April 2, 2020

 

IMPORTANT DISCLOSURES Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Ballast Advisors, LLC is a registered investment advisor under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about the firm, including its services, strategies, and fees can be found in our ADV Part 2, which is available without charge upon request. The opinions expressed herein are those of Ballast Advisors, LLC and are subject to change without notice.

 

What You Need to Know About the SECURE Act

Recently Congress passed both the SECURE Act and the CARES Act into law.  Although these Acts are comprehensive in aggregate, Ballast Advisors financial professionals have comprised a summary of the sections we want our clients to understand.

If you have questions, please contact your financial advisor.

 SECURE ACT SUMMARY

Required Minimum Distributions (RMDs) to Begin at Age 72

Section 114 of the SECURE Act delays the commencement of Required Minimum Distributions (RMDs) from most retirement accounts until age 72 (from the previous beginning date of age 70 ½.)

  • Retirees will still be able to delay their first RMD until April 1stof the year following the year for which they must make their first RMD. So, a retiree turning age 72 on January 24, 2021 has until April 1st, 2022 to take their first RMD (but will have to take two RMDs during 2022, one for 2021 and one for 2022). 

Qualified Charitable Distributions Still Allowed at Age 70 ½

Even though RMDs don’t begin until age 72 under the SECURE Act, Qualified Charitable Distributions (QCDs) are still allowed beginning at age 70 ½. A QCD allows a taxpayer to distribute amounts directly from their IRA to a charity, and such distribution is not includable in income (up to $100,000). Once the taxpayer reaches age 72, the QCD will be allowed to reduce his or her RMD, just as before.

Traditional IRA Contributions Allowed After Age 70 ½.

Beginning in 2020, anyone—regardless of age—will be allowed to contribute to a Traditional IRA, provided such person has earned income (income from wages or self-employment). So, if a taxpayer is working, or has a spouse who is working, he or she can continue to contribute to a traditional IRA after age 70 ½.

End of the ‘Stretch’ IRA

The end of the ‘stretch’ IRA for most non-spouses. The stretch IRA allowed designated beneficiaries to stretch distributions over their life expectancy after inheriting an IRA. The new law requires the entire inherited IRA to be distributed by the end of the 10th year following the year of inheritance. However, there are no RMDs, so beneficiaries can choose to liquidate the inherited IRA over several years or all at once, if it is emptied by the end of the 10th year.  

  • This new rule applies to both traditional and Roth IRAs. Since Roth IRA distributions are tax-free, waiting until the 10thyear to empty the Roth IRA can be a good strategy.
  • Minor children of the original retirement account owner aren’t subject to the 10-year rule until they reach the age of majority.

Inclusion of Student Loans and Apprenticeships for Qualified Education Expenses From 529 plans

Expenses for Apprenticeship programs are now included in Qualified Higher Education Expenses, provided the program is registered and certified with the Department of Labor.

  • Also, “Qualified Education Loan Repayments” have been included as qualified higher education expenses. Such distributions from a 529 plan used for student loan repayments are limited to a lifetime amount of $10,000.
SourceSetting Every Community Up for Retirement Enhancement Act of 2019 – SECURE 

 

Ballast reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. Past performance is not indicative of future results. Nothing contained herein constitutes an offer to buy or sell a particular security or investment strategy. The material presented is derived from a third-party source believed to be reliable, but its accuracy and certainty cannot be guaranteed.

Ballast Advisors, LLC is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Ballast, including our investment strategies, fees and objectives, can be found in our ADV Part 2 which is available upon request.

What You Need to Know: CARES ACT

Coronavirus Aid, Relief, And Economic Security Act: Letter Tiles CARES Act On US Flag, 3d illustration

Recently Congress passed both the SECURE Act and the CARES Act into law.  Although these Acts are comprehensive in aggregate, Ballast Advisors financial professionals have
comprised a summary of the sections we want our clients to understand.   

If you have questions, please contact your
financial advisor.

 CARES ACT SUMMARY

INDIVIDUALS

  • Provides rebates of up to $1,200 for single individuals and $2,400 for joint filers.  This rebate is subject to a phase-out beginning at adjusted gross income of $75,000 and $150,000 respectively.  Taxpayers with qualifying children will receive an additional $500.  The rebates will be based upon 2019 returns if already filed.  If 2019 has yet to be filed, then rebates will be based upon the 2018 returns.  The IRS is still reviewing multiple methods of delivery.

    • Advanced refund payments are based on your most recent tax return. If you have filed a 2019 return it will be based on your 2019 income.  If you have not yet filed a 2019 return it will be based on your 2018 income.  If you don’t qualify based on your 2018 or 2019 tax return, you may on your 2020 tax return, in which case your rebate will be received in 2021. 

    • To qualify, the taxpayer must have an SSN and not be a dependent of another taxpayer.

  • Provides waivers on the 10% early withdrawal penalty for distributions of up to $100k made from qualified retirement plans and IRAs, provided these distributions were made because your finances were directly impacted by COVID-19.  You may return your taxable withdrawal over three years without consideration of the maximum retirement plan contribution limit. 

  • Loosens loan thresholds and repayment terms for loans taken out from certain retirement plans.  Please contact your employer to determine the specifics of their loan rules.

  • Waives RMDs (Required Minimum Distributions) from retirement plans including IRAs.  RMDs already taken in 2020 generally cannot be returned to the retirement plan.

  • Allows an above the line deduction of up to $300 of cash charitable contributions for those individuals claiming the standard deduction.

    • Only cash contributions are allowed for the $300 deduction. Contributions to a Donor Advised Fund or a private foundation do not qualify for the $300 above the line deduction.  This provision will not expire in 2020, making it available in future years.

  • Allows a relaxation of the income limit for charitable contributions for those individuals itemizing their deductions on Schedule A.

    • Section 2205 provides that the limitations on charitable contributions for Schedule A are repealed for 2020, so cash contributions can offset 100% of income.

Source:   Coronavirus Aid, Relief, and Economic Security Act
 

BUSINESSES

  • Section 2302 provides that all employer payroll taxes for 2020 could be deferred. Employers would remit 50% on 12-31-2021 and 50% on 12-31-2022 with no interest charged in the meantime.  This rule also applies to self-employment taxpayers.

  • Section 2301 creates an employee retention tax credit for employers. The employer will get a refundable credit for employment taxes paid to employees.  Eligible employers have a business that was fully or partially suspended during 2020 because of an order from a government authority.  Also, employers can qualify if they were open and revenue was down 50%  or more from the prior year quarter over quarter.  Qualifying wages are up to $10,000 per employee for the year.  Employers who take a small business interruption loan are not eligible. 

  • Section 2307 fixes the TCJA definition for qualified improvement property so it will have a 15-year life span. With a 15-year life span on qualified improvement property, 100% bonus depreciation would be allowed on the qualified improvement property, retroactive to 2018.  Amended returns could be filed for 2018 and 2019 if already filed.

  • Modifies the charitable contribution limitations based on income for corporations and extends this to donation of food inventory.

  • Section 2206 expands the employer paid tuition assistance to include payment of student loans.

    • An employer can pay up to $5,250 of tuition or student loans tax-free for an employee in 2020. In 2021 the rule reverts to tax-free for only tuition.

  • Section 2303 modifies the rules around Net Operating Losses. NOLs created in 2018, 2019, 2020 can be carried back 5 years with no 80% limitations.  So, losses from 2018, 2019, or 2020 could be carried back 5 years and used to fully offset income in prior years for individuals and C Corps.

  • Section 2305 modifies AMT credit rules for C Corporations.

  • Section 2306 modifies the Section 163(j) interest expense limitations. They are modified to allow interest expense of 50% of adjusted taxable income instead of 30% for the 2019 and 2020 tax years.  The 163(j) limitation returns to a 30% limit in 2021.

  • Provides additional funding options including the Paycheck Protection Program (referred to as PPP) under SBA 7a program guidance.  The PPP does have a potential loan forgiveness portion.

Source:   Coronavirus Aid, Relief, and Economic Security Act

Ballast reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. Past performance is not indicative of future results. Nothing contained herein constitutes an offer to buy or sell a particular security or investment strategy. The material presented is derived from a third-party source believed to be reliable, but its accuracy and certainty cannot be guaranteed.

Ballast Advisors, LLC is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Ballast, including our investment strategies, fees and objectives, can be found in our ADV Part 2 which is available upon request.

Bear Markets Come and Go

If you are losing sleep over volatility driven by a cascade of disheartening news, it may help to remember that the stock market is historically cyclical.

The longest bull market in history lasted almost 11 years before coronavirus fears and the realities of a seriously disrupted U.S. economy brought it to an end.

If you are losing sleep over volatility driven by a cascade of disheartening news, it may help to remember that the stock market is historically cyclical. There have been 10 bear markets (prior to this one) since 1950, and the market has recovered eventually every time.

Bear markets are typically defined as declines of 20% or more from the most recent high, and bull markets are increases of 20% or more from the bear market low. But there is no official declaration, so in some cases there are different interpretations regarding when these cycles begin and end.

On average, bull markets lasted longer (1,955 days) than bear markets (431 days) over this period, and the average bull market advance (172.0%) was greater than the average bear market decline (-34.2%).

*The intraday low marked a decline of -20.2%, so this cycle is often considered a bear market.

The bottom line is that neither the ups nor the downs last forever, even if they feel as though they will. During the worst downturns, there were short-term rallies and buying opportunities. And in some cases, people have profited over time by investing carefully just when things seemed bleakest.

If you’re reconsidering your current investment strategy, a volatile market is probably the worst time to turn your portfolio inside out. Dramatic price swings can magnify the impact of a wholesale restructuring if the timing of that move is a little off.

A well-thought-out asset allocation and diversification strategy is still the fundamental basis of good investment planning. Changes in your portfolio don’t necessarily need to happen all at once. Try not to let fear derail your long-term goals.

The return and principal value of stocks fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost. Asset allocation and diversification are methods used to help manage investment risk; they do not guarantee a profit or protect against investment loss. If you are losing sleep over volatility driven by a cascade of disheartening news, it may help to remember that the stock market is historically cyclical.

The S&P 500 is an unmanaged group of securities that is considered to be representative of the U.S. stock market in general. The performance of an unmanaged index is not indicative of the performance of any specific investment. Individuals cannot invest directly in an index. Past performance is not a guarantee of future results. Actual results will vary. Source: Yahoo! Finance, 2020 (data for the period 6/13/1949 to 3/12/2020)

 

 

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2020

IMPORTANT DISCLOSURES Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Ballast Advisors, LLC is a registered investment advisor under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about the firm, including its services, strategies, and fees can be found in our ADV Part 2, which is available without charge upon request. The opinions expressed herein are those of Ballast Advisors, LLC and are subject to change without notice

 

The Coronavirus and the Global Economy

As of February 26, 2020, the death toll from COVID-19 — the official name of the coronavirus first reported in Wuhan, China — passed 2,700, while the number of confirmed cases exceeded 80,000. Almost all were in China, most of them in Wuhan and the surrounding Hubei province. But more than 2,500 cases, including 46 deaths, had been reported in almost 40 other countries. A surge of cases and deaths in South Korea, Italy, and Iran caused new concern that the virus may be difficult to contain.1

Cities under lockdown

By mid-February, at least 150 million people in China were under restrictions affecting when they could leave their homes, and more than 760 million — about 10% of the world’s population — lived in communities under some form of travel restriction.2 Most global airlines cancelled service to and from China, disrupting tourism and business travel.3 The Chinese government enacted restrictions around the time of the Lunar New Year celebration, during which many businesses were closed, lessening the immediate impact. However, as factories and other businesses remained closed after the holiday, the loss of Chinese production and consumer spending began to take a toll on global businesses.4

Lost supply and demand

Many U.S. technology companies have manufacturing operations in China while also selling to Chinese businesses and/or consumers. Companies with substantial exposure to the slowdown in China include big tech brands such as Apple, Dell, Hewlett Packard, Intel, and Qualcomm, as well as many smaller tech businesses.5-6

Vehicle manufacturers throughout the world rely on Chinese-made parts, and many have plants in China. General Motors (which sells more cars in China than in the United States), Ford, Toyota, BMW, Honda, Nissan, Tesla, and Volkswagen all suspended operations in China, while Hyundai and Renault closed plants in South Korea, and Fiat Chrysler closed a plant in Serbia, all due to parts issues.7-9

Global retailers including Apple, Ikea, Levi Strauss, McDonald’s, KFC, and Starbucks temporarily closed stores in China.10-11

In addition to disruptions in the global supply chain and Chinese consumer market, the tourism industry in the United States, Europe, and other Asian countries may be hard hit by the absence of Chinese tourists. One estimate suggests a loss of almost $6 billion in U.S. airfares and tourist spending.12

Although it is too early to measure the full effect on global business, a private report released on February 21 indicated that U.S. business activity had slowed in February to the lowest level in six years, with the biggest hit to the service sector, where travel and tourism are major components. The report also indicated a sharp drop in Japanese business due to lost tourism and export orders. Exports were down in Germany, but the initial impact on the eurozone was minimal.13

Oil pressure

China is the world’s largest importer of crude oil, and Wuhan is a key center of its oil and gas industry. The prospect of lower demand drove oil prices into bear-market territory — defined as a drop of 20% from a recent high — in early February. Prices rose later in the month but dropped again with news that the virus may be spreading. Natural gas prices have also been hit by the prospect of lower growth in Asia. While lower prices may be good for U.S. consumers, oil-exporting nations, including the United States, will face lower revenues, and energy companies that are already on rocky ground may struggle.14-17

Market reaction

In late January, the Dow Jones Industrial Average lost 3.7%, due in large part to concerns about the virus, wiping out gains for the year.18 The market bounced back quickly and set new records in February, but weak business news and a rash of cases outside of China sent it plunging, with a loss of almost 8% from February 19 to 25.19-20 This suggests that the market may be volatile for some time and that future direction might depend on the progress of disease control and emerging information on the impact of the virus on U.S. and global businesses.

See Related Post: Eleven Ways to Help Yourself Stay Sane in a Crazy Market

Global growth outlook

Anything that affects China, the world’s second-largest economy, can have a powerful ripple effect around the globe. An early February report by Moody’s Analytics estimated that every 1 percentage point reduction in China’s real gross domestic product (GDP) will reduce global GDP outside China by 0.4%. The report projected that disruption caused by the virus would cut more than 2 percentage points off China’s GDP growth in the first quarter of 2020 and result in a loss of 0.8% growth for the year. This in turn would cause a loss of about 0.3% in annual global GDP growth outside China and about 0.15% in the United States. Moody’s lowered its projection for 2020 global growth from around 2.8% to 2.5%.21

In a February 16 forum, Kristalina Georgieva, managing director of the International Monetary Fund, was more optimistic, suggesting that the virus might shave 0.1% to 0.2% off the IMF’s 2020 global growth projection of 3.3%. Georgieva cautioned that there was still a “great deal of uncertainty” and emphasized that the economic damage depends on the length of the disruption. If the disease “is contained rapidly,” she said, “there can be a sharp drop and a very rapid rebound.”22

The immediate concerns are to combat the virus on a human level and normalize business activity, but the outbreak could accelerate the shift of U.S. and European manufacturing away from China, creating a more diversified global supply chain.23-24  The situation remains in flux, so you may want to keep an eye on further developments.

All investments are subject to market volatility and loss of principal. Investing internationally carries additional risks such as differences in financial reporting, currency exchange risk, as well as economic and political risk unique to the specific country. This may result in greater share price volatility. Shares, when sold, may be worth more or less than their original cost.

1) South China Morning Post, February 26, 2020

2) The New York Times, February 18, 2020

3-4, 21) Moody’s Analytics, February 2020

5, 23) The Wall Street Journal, February 18, 2020

6, 10) Los Angeles Times, February 4, 2020

7) Forbes, February 12, 2020

8) Car and Driver, February 4, 2020

9) The Wall Street Journal, February 14, 2020

11-12, 14-15, 18) The Wall Street Journal, February 3, 2020

13) The Wall Street Journal, February 21, 2020

16, 20) The Wall Street Journal, February 25, 2020

17) The Wall Street Journal, February 7, 2020

19) The New York Times, February 20, 2020

22) Bangkok Post, February 17, 2020

24) South China Morning Post, February 18, 2020

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2020

IMPORTANT DISCLOSURES Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice. Ballast Advisors, LLC is a registered investment advisor under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about the firm, including its services, strategies, and fees can be found in our ADV Part 2, which is available without charge upon request. The opinions expressed herein are those of Ballast Advisors, LLC and are subject to change without notice.