Despite the expectation that earnings this quarter and next were going to be a disappointment, stocks have been gaining. That is because results have not been as low as some analysts have projected. However, when is better than bad not good enough for investors?

 

It appears we have found out this week. It is a known fact that mega-cap, technology companies (the FANG stocks) have been leading the market throughout this rebound. This week, several of these companies reported and while the results, in some cases, have been stellar, (given the overwhelming economic negatives in the economy), others were simply "acceptable."

 

Two of the largest market darlings, Amazon and Apple, reported after the close on Thursday night. The verdict appears to have been disappointment, despite both companies accomplishing a mammoth task to produce the numbers they did.

 

But sometimes the market just needs an excuse to go up or down. I suspect that the FANG stocks are that excuse for traders to finally take some profits after an almost 20 percent uninterrupted series of gains. There could also be a couple of other factors that contributed to this week's decline.

 

For instance, we know that stocks discount future events. The market began to climb while we were all in the throes of lockdowns, stay-in-place orders and death counts. That's because the market was already looking beyond these events and discounting the future -- the re-opening of the economy. This week, more than 37 states announced plans to do just that. Good news, for sure, but news that the markets had already discounted, in my opinion.

 

What, you might ask, is the market discounting now? It could be the realization that this virus is not going away any time soon. The latest medical reports seem to indicate that COVID-19 could be with us for at least the next two years. If so, what impact will that have on the economy, on earnings, and on the labor force?

 

Those calculations, those "what-if" scenarios, are presently the grist of the stock market's mill. Then there are the elections, now only 6 months away. The poor handling of the pandemic has dented Donald Trump's chances for re-election. He knows that and so do the Democrats.

 

With so little time, and the knowledge that a recessionary economy usually spells doom for the incumbent, Trump needs to go on the offensive.

 

Blaming others for mistakes has always been part of his repertoire. Americans, you see, love to cast blame on anyone and everyone, as long as it is not themselves. Trump learned how to use that knowledge to his benefit. Who could be Trump's "go-to" whipping boy?

 

China. I expect to see a mounting crescendo of threats, accusations, and Chinese conspiracy theories erupt from the White House. After all, didn't COVID-19 originate in China?

 

What other excuse does a campaign in trouble really need?

 

We all know how two years of China-bashing impacted world markets. Trump's tweets sent markets up or down continuously. Economies slowed, tariffs were raised, and in the end, Trump bragged about a "Phase One" deal that was largely symbolic. By the way, that strategy did not work out too well for him in the mid-term elections.

 

Doing that again, combined with the real issue of an on-going pandemic, may be worth discounting now, or so the stock market seems to think. Last week, I said if the markets decided to head south, we could see a 5-10 percent correction. We have already logged in about 3 percent of that decline between Thursday and Friday's sell-off. I do not think that we are going to re-test the lows, however, unless the re-opening of America backfires and COVID-19 cases re-escalate.

 

As of the end of April, more than 30 million Americans have joined the ranks of the unemployed. Companies have closed, while the pandemic has forced many employees to remain at home. If you are one of the jobless victims of this pandemic, here is some advice on your next steps you might take.

 

First off, do not panic. If there was ever a time for this to happen, it is now. The federal government has provided you with a list of additional benefits that can help you through this unfortunate period. But the first things you want to know is will there be a severance package? If there is, the amount of  money you receive will most likely be determined on your length of employment. It may also come with other benefits.

 

You may be owed for accrued sick time, vacations, overtime, or back pay. The most important item on your list, however, is continued health-care insurance, especially during this pandemic. COBRA (Consolidated Omnibus Budget Reconciliation Act) gives you the option to continue on your company's health care plan for a limited period of time.

 

Your next step is to determine the guidelines in any tax-deferred savings or pension plans you may have contributed to through the years. If, for example, you are a member of a defined benefit plan, your benefits probably begin at retirement age. In the meantime, you might be able to roll that plan over into another.

 

Most companies offer a 401(k) plan, profit-sharing plan or something similar. In which case you can keep it there, at least until you find a new job and then you can roll it over to your new company's plan. You can cash out, but that is something I do not recommend without discussing with an investment advisor. You can also roll your plan into another tax-deferred vehicle, like an Individual Retirement Account.  

 

Your next step is to file for unemployment. The good news is that the government has added an additional $600 to your weekly compensation up until the end of July 2020. They also extended the number of weeks you are eligible for unemployment from 26 weeks to 39 weeks.

 

If your company shuts down unexpectedly, it may be that some employees will need to tap their savings plans in order to cover expenses while they seek new employment. That kind of disaster has hit home to me personally this week. Our firm is fairly close to a beautiful little town called North Adams in Massachusetts. North Adams' claim to fame is that it is the home to the Crane Stationery Company, established in 1801 by the Crane family. The Crane Family later moved into printing currency for the U.S. mint.

 

This week Crane Stationery announced that they will be laying off 85 percent of their workforce. The company promised to pay its employees up until June 19 and will continue to cover its share of group health care benefits through to the end of June.  The news was a devastating blow to both the workers and the community. Crane was one of the top employers in the town.

 

We at Berkshire Money Management will be opening our doors to all and any of the company's employees who are in need of financial advice for the foreseeable future. So, if you are an employee or know of one, please contact me and our team will do all we can to help. 

 

In the meantime, I thought it might be appropriate as the national employment rate tops 20 percent, to once again review the elements provided by the CARE Act as it relates to withdrawals from your 401(k). Normally, if you need money from a retirement account, and you are under 59 1/2 years old, you are required to pay a 10 percent penalty, plus the income tax owed on your withdrawal. There are some exceptions to the rule and the CARES Act just added a big one. The federal government just eliminated that 10 percent penalty for any distributions from IRAs, employer-sponsored retirement plans, or a combination of both.

 

Individuals can withdraw up to $100,000 in 2020, as long as the withdrawal is "Coronavirus-related." That definition leaves plenty of room for interpretation. If you or a spouse or dependent have been diagnosed with the virus, you qualify. If you or your family have been hurt financially by COVID-19 as a result of being laid off, quarantined, or having reduced working hours, you qualify.

 

There is even better news. Let's say you take out the money, which you will need to tide you over for the next nine months. After that, the economy begins to revive. You get your old job back. If so, the government is allowing you to repay or roll the money you borrowed back into your retirement account. You will have three years to do so. You can return all, or part of what you took out and repay it in a single lump sum, or in multiple repayments. You will still need to pay regular taxes on whatever you take out this year, but the entire tax bill does not have to be paid in 2020.

 

Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $400 million for investors in the Berkshires.  Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

As the economic and unemployment numbers reveal the devastating impact of the coronavirus, a struggle has developed between those who want to reopen the economy now, and others who fear the consequences of doing so. Is it truly a trade-off between economic life and additional deaths?

 

No one knows, but plenty of people and red-state politicians seem willing to take the chance. Those in blue states, which have been hit the hardest by COVID-19, along with the entire international medical community, want to take a more cautious approach.

 

As far as the markets are concerned, the roller-coaster ride that sent the averages up and down on a daily basis this week was simply a reflection of this on-going argument. As readers are aware, investors can and will plan for a known outcome, whether good or bad. They resist taking an action if the outcome is unknown. What we have here is one big unknown. 

 

It struck me just how fragile this 28 percent rebound in the averages is right now. For example, Gilead, a biopharmaceutical company, that investors hope may have developed a drug (Remdesivir) for the treatment of COVID-19, erased just about the entire gains of all three averages Thursday.

 

The World Health Organization mistakenly revealed the findings from an incomplete clinical trial by Gilead conducted in China on its website. The study stated that the drug failed to speed the improvement of patients afflicted by the virus. WHO took the posting down quickly, but the damage was done. The markets erased gains despite the fact that an additional, much more meaningful, study should be forthcoming in the coming weeks.

 

As the unemployment rate skyrockets, erasing virtually all the employment gains of the last decade, and the data on the economy becomes worse and worse, Corporate America and a large segment of small businesses, are demanding that the country get back to work, despite the human costs. Of course, it is couched in terms like "reasonable," "safe" and "slowly," but open nonetheless.

 

Investors have been tugged in opposing directions. Statements from various governors on immediate plans to reopen are encouraging the markets, while the continued information flow from other states and the medical community about the spread of the virus have investors unwilling to push the markets higher.

 

A New York study measuring the spread of the COVID-19 virus found 13.9 percent of people tested had signs of the virus. If you extrapolate those results on a statewide basis, about 2.7 million New Yorkers may have the virus. That's about 10 times the official count based on the testing of mostly very sick patients. And that illustrates the crux of the matter.

 

Without the ability to test the population of the United States, there is absolutely no way of knowing whether going back to work on a national basis will simply lead to a "round two" and a further blow to the economy, which some believe could send us into a second depression.

 

Critics point to that very thing happening during the 1917 influenza pandemic. The country was loath to quarantine its citizens as World War I got under way. Infected American troops were sent into Europe, which caused the flu to spread worldwide and mutate. By 1918, a second wave hit America and in a three-month period decimated the country. Could it happen again? Doubtful, but few medical professionals want to take that chance.

 

Rational readers might ask the obvious question: why, after five months, and millions of people infected, has the United States government failed to develop, buy, and/or administer enough tests to reveal the true extent of the virus in America? The technology, materials and know-how exist. If China, Europe, and even some emerging markets, like South Korea, can do it, why can't we?

 

It is a mystery that continues with no explanation, despite daily "briefings" by the White House. The only reasonable explanation, in my opinion, is that our government is deliberately avoiding testing, but for what reasons?

 

In the meantime, the markets seem to me to be close to a resolution over this debate. For the last two weeks, we have been in a trading range. For the S&P 500 Index, the bottom of the range is around 2,720, while the top is just around here at 2,800. As I have explained, so much of what will dictate the next move in the markets is outside of my expertise.

 

If Gilead's drug, or some other breakthrough vaccine, should be developed, the markets could break out on the upside, and we could easily see another 100-plus points tacked onto the index. If, at the same time, those states that go back to work have no problems, that too could encourage the markets. If, instead, virus cases ramp up in the country, as a result of going back to work, we could break 2,702 on the downside. If so, expect another 5-10 percent pullback. I wish I could be more certain, but this pandemic remains a big unknown to all of us, present company included.

 

We have all seen the heart-rending photos and videos. They are of nurses, mostly. As a large part of America's frontline against COVID-19, the media has determined that nurses and other healthcare workers are now "newsworthy." But there is a deeper story here.  It is about American women in general.

 

Actually, it was the "Gray Lady," the venerable New York Times, that first focused my attention on the real unsung heroes of this pandemic — women. Underpaid, taken for granted, expected to work for less pay, raise the kids, take care of the parents, and when they have time, maybe sleep for a few hours.

 

During this pandemic lock-down of the nation, a number of industries have been deemed "essential." That means that without these jobs, the basic needs of an economy would freeze up, causing untold hardship for everyone. Obviously, healthcare workers are an essential industry, as are law enforcement and safety personnel. Other industries that supply goods and services are essential as are financial services, food processing, transit, defense, utilities, agriculture, delivery and transportation, just to mention a few.

 

Of these industries, women represent 52 percent of all essential workers. The Times cross-checked the latest Census data with the federal government's essential workers guidelines and determined that one in three essential jobs are held by women.

 

In some industries, like health care for example, women account for nine out of 10 nurses and nursing assistants, most respiratory therapists, as well as the majority of pharmacy aides and technicians. I have firsthand knowledge of this group of women, because many health-care workers are clients of ours. They are the hardest working, bravest slice of humanity I have ever had the pleasure to meet.

 

There are 19 million health-care workers in this country — almost three times the number employed in farming, law enforcement, and package delivery, which are mostly male dominated. But you can also find a preponderance of women in other jobs that force them into clear and present danger. Grocery clerks, bank tellers, like my sister, and those who man fast food counters are far more likely to be women than men.

 

But let's not confine this discussion to just essential workers. Women workers, overall, have suddenly been presented with at least double their normal workload. Under different circumstances, working from home might be considered a perk, but not during the pandemic, especially if you are married with children. My 40-year-old daughter is an example.

 

Married, with two children, ages 8 and 5, Jackie is working from home. Her normal support system has disappeared. There is no child care, school, or domestic help. Even take-out food is scarce. As a full-time employee, she is still expected to produce, show up (at least digitally), and devote the usual number of hours a day to her workplace.

 

"The virus has effectively quadrupled my workday," she said, as she and her family hunker down in Long Island. 

 

"I am managing two kids in 'virtual' school, while working full time. In addition, I am cleaning constantly, managing the work/play schedules for two young kids, who have had to adjust to a whole new way of life. That's not to mention cooking three meals a day, every day."

 

As for the fact that her job is not listed as essential, she says, "That's BS. Three out of three women in this country are essential. We are essential to our households, to our families and to our jobs. This pandemic just makes it harder to deny." 

 

I couldn't have said it better myself.

 

A spate of good news helped stocks this week battle the overriding pessimism of the last month. A possible drug to combat the COVID-19 virus coupled with a flattening of the virus curve in some regions helped the markets to gain ground. Can it continue?

 

It sure can, although a pause to catch our breath may be in order for next week. Gilead Sciences, the pharma/biotech company, has been working at breakneck speed to develop a drug to treat coronavirus patients. On Thursday, a report in a health-care publication indicated that its experimental drug, Remdesivir, was having some success in human trials. The indexes spiked higher on this news.

 

On the same day, Donald Trump and his crew basically turned the process of re-opening the economy over to the country's governors. That news was also greeted positively by investors, who have little-to-no confidence in an administration that has proven less than capable of handling the pandemic crisis.

 

As a result, stocks have continued their rally of last week, when the averages notched up better than 12 percent gains. 

 

"How can this be?" inquired one client, who has a reputation for "chasing" the market up and down. We are getting the worst results in history — unemployment, earnings, COVID deaths — and the markets are going up?"

 

A client wanted to sell half of his portfolio on Tuesday, keeping the other half in the market. He proceeded to list for me all the reasons why that move was justified. But there was nothing I haven't heard or read over and over again for the last few weeks.

 

"Tell me something I don't know," I finally said. "If you and I are aware of all of this, then so is the market. Give me some new information that the market has not already discounted." He couldn't come up with anything. Fortunately, I convinced him not to act on his impulse, and as a result, he is better off today.

 

Investors are no longer focusing on the past nor the present, it is the future that has traders' attention. What states will get back to work first? When will there be promising results for a vaccine?  When are Americans going to be able to be tested? Those are the unknowns and the direction of the stock market will depend on those outcomes.

 

Let's take the back-to-work dilemma. I want to go back and work in the office, but I have no way of knowing whether I will be infected if I do. None of my fellow employees have been tested, nor are there tests available to do so — unless they come down with the symptoms. By then, it would be too late for me.

 

That is the story playing out all over the nation. After all of this time, only one percent of the nation's population has been tested for COVID-19. All over the world, governments have focused on testing in an effort to control the spread of the virus, along with isolation. Why have we failed in achieving this objective, when so many others have succeeded? Is it because some in government are betting that what we don't know, won't hurt us?

 

And without widespread testing, there can be no back-to-work scenario

 

Opening up the country without the capability of wide-spread testing is simply playing Russian roulette with the lives of its citizens, in my opinion. It appears that for some corporations and politicians, the risks are worth it.  My bet is that without this crucial element resolved, there can be no back-to-work scenario for the economy, and further gains in financial markets could be capped on the upside.