Jul 8, 2020
Low-interest rates and slow economic growth make growth stocks very attractive. Contrary to common thought, value stocks have outperformed growth stocks over long periods of time. Currently growth stocks are priced similiarly to where they were during other over-valued periods, such as the "dot.com" bubble of the late 1990s and the end of the "Nifty Fifty" in the early 1970s. Current valuations are similiar to these previous valuation ranges. Growth stocks should be more highlhy valued during periods of low-interest rates and a slow-growth economy, but prices are reaching growth stock bubble extremes.
Oil Prices Decline
Saudi Arabia and Russia are both large exporters of oil and are in a market share feud. Both want to sell more oil to the rest of the world and one way is to lower the price and increase production. Currently oil is about $20/barrel. Many oil-producting companies need at least $40/barrel to be profitable. The lower prices can seriously damage leveraged companies and nations that have high fixed cost. In addition to a price decline and production increase from Saudi Arabia and Russia, we have a coronavirus outbreak that is shutting down America and reducing the demand for gasoline. People are staying home. As prices decline production tries to increase to maintain the same income, but there is only so much demand.
Oil companies with highly leveraged balance sheets run the risk of going out of business. Stronger companies with less debt will only see a temporary decline in their earnings. These comapnies will recover when oil prices rise, but their long-term appeal is much less attractive.
RMDS waived in 2020
The new CARES act also included provisions related to qualified retirment accounts. For account owners of 401K, 403b, 457b and IRA plans who would be subject to RMDs (required minimum distributions) withdrawals are temporarily waived for 2020. If you do not need money from your retirement plan account, you can leave it for another year before withdrawing it and paying income taxes. In addition, the 10% early withdrawal penalty for withdrawals from a retirement account by non-retiree age individuals has been waived.