After the S&P 500’s worst first quarter on record, the stock market made history with an unprecedented recovery, taking many investors and prognosticators by surprise. Following the market lows reached on March 23rd, the S&P 500 was up 38% through the end of the 2nd quarter, marking one of the sharpest rallies over the past 100 years. The rally was not only monumental given the total return in just 3 months, but there was also 29 trading days (out of 70) that were up over 1%.
With assurance from Chairman Powell that “we will not run out ammunition”, along with optimism that coordinated and focused scientific research would eventually lead to a vaccine (WHO reported there are more than 100 vaccine candidates and over 20 in clinical trials), investors started to look past the pandemic and forward to an economic recovery.
Click here to continue reading our 2nd Quarter 2020 Market Commentary
We spent many hours at the end of 2019 looking at all the potential risks in the economy and markets and nowhere did we find a global pandemic caused by a bat in China. This quarter was the worst performing 1st quarter in history with the S&P 500 down 35% on March 23rd, before rallying to close the quarter down 20%. It took only 18 trading days to go from the greatest market in history to a bear market. There was no discrimination in the decline as nearly all companies suffered significant declines, regardless of their health and growth prospects. Unless we are going into a depression, we believe that much of the bad news has now been priced into stocks. However, a market bottom is typically a process and not an event. The coming months will tell us more about this recovery as the duration will dictate its shape: V, U or L.
Please click here to continue reading our 1st Quarter 2020 Letter
As a follow up to our overview of The CARES Act sent last week,
the third Federal stimulus bill in response to COVID-19, I wanted to provide
you with a quick update on additional guidance recently issued on the two key
SBA loan programs available to business owners: the Payroll Protection
Program (this is the program that will issue forgivable loans and
every business owner should know about) and Economic Injury Disaster Loans.
The Payroll Protection Program (“PPP”)
- Signed into law on Friday, these are SBA loans administered by banks. $350 billion of loans will be issued.
- Businesses with < 500 employees, as well as self-employed individuals, can apply for a loan of up to 2.5x their average monthly payroll costs. Payroll costs include wages, health insurance, and retirement plan contributions, capped at an annual salary of $100,000 per employee. For example, if your business average monthly payroll is $50,000 the maximum loan is $125,000.
- If the loan is used for certain expenses (payroll costs, rent, utilities, etc.) during the 8 weeks following the origination of the loan, and as long as there is not a reduction in the number of employees or a greater than 25% reduction in wages paid, the borrower is eligible for complete loan forgiveness. This is a tax-free grant.
- The application was just released yesterday, a copy is attached for your review, and we understand that banks will start processing most loans this Friday (April 3rd) and next Friday (April 10th) for any self-employed individuals or independent contractors.
- There are two things that we recommend you do at this time:
- Calculate your average monthly payroll costs for the 12 months from April 2019 through March 2020 (you will likely need to substantiate this with payroll returns filed over that time period, so you should have those ready as well), and
- Contact your CURRENT business bank/banker. As mentioned, these forgivable loans will be administered by banks, and we have heard that bankers intend to take care of their existing customers first. Many lenders who have not done SBA loans in the past will start processing PPP loans. Each bank will have its own list of required documents that you will need to provide.
If we can help with the average monthly payroll calculations, or
working through the requirements of maintaining your pre-COVID-19 payroll
and/or reinstating terminated employees to meet this test, please let us know.
Economic Injury Disaster Loans (“EIDL”)
- Businesses with < 500 employees, as well as self-employed individuals, can apply for loans of up to $2 million. Interest rates will be low, and terms will be 15 to 30 years.
- Eligible businesses may receive an advance of up to $10,000 within 3 days of submitting a loan application.
- Advances made prior to loan approval do not need to be repaid, even if the loan application is denied.
- Businesses will likely be able to receive a much larger loan under the EIDL compared to the PPP, to be used for a variety of operating expenses over a longer time period, but these loans are not forgivable.
guidance is issued we will continue to keep you updated.
Yesterday evening, the
Senate passed an updated version of the Coronavirus Aid, Relief and Economic
Security (CARES) Act (Stimulus Phase III).
The bill is intended to be a third round of federal government support for
individuals and businesses and is the product of negotiations between Democrats
and Republicans for a bipartisan response to the crisis. Please note that at this time it has not
been enacted into law but is expected to be by Friday, March 27th.
We are fielding a
number of questions from our business owner clients, who have already been
significantly impacted by COVID-19, regarding their options for access to
short- and long-term liquidity to minimize business disruption. If this applies to you, please feel free to
read ahead to the “business” section of this letter.
Click here to read key provisions for individuals and businesses