Day: June 30, 2020

A ‘Hippocratic oath’ for financial advisers? The SEC’s new ‘Regulation Best Interest’ gets mixed reviews.

This post was originally published on this site

Vance Barse is a San Diego, California-based financial advisor who runs a company called “Your Dedicated Fiduciary.”

The financial advice industry is often seen as bifurcated between broker-dealers, who execute trades for clients on a commission basis, and Registered Investment Advisors, who provide wider sets of financial advice for a fee, and who have a fiduciary duty to their clients.

But Barse, whose company serves 55 households around the country, is neither. He is an Investment Adviser Representative. And he is also an Accredited Investment Fiduciary, a designation that demonstrates he’s met certain criteria to act as a fiduciary for clients — that is, in their best interest.

Clear as mud, right? For anyone who thinks the business of buying financial advice ought to be easier to understand, industry observers aren’t very hopeful. Consumers are on their own and regulators aren’t likely to be much help, many think. That notion is especially evident now, as financial services professionals get used to a new industry rule taking effect June 30.

Regulation Best Interest, which was developed as a successor to the Fiduciary Rule proposed by the Obama administration’s Department of Labor, has an innocuous name. But industry observers say it’s confusing, scattershot, and designed to protect industry, not investors.

“The standard doesn’t do enough to strengthen the regulatory obligations of broker-dealers or investment advisors,” said Barbara Roper, director of investor protection for the Consumer Federation of America. “It doesn’t do enough to assist investors in making informed choices between broker-dealers and investment advisers. Everything it set out to do, it has failed. And that is precisely because the (Securities and Exchange Commission) chose to prioritize not disrupting the broker-dealer business model over protecting investors.”

Related: What is asset allocation?

As Barse’s business shows, the line between broker-dealers and advisers is becoming more blurry with time.

“Brokers have evolved into advisors of sorts,” Roper told MarketWatch. “No-one pays for brokerage services to have someone conduct the transaction. You can do that now with the click of a mouse.”

Research shows that most retail investors “don’t understand the differences between broker and advisor, they don’t have the financial sophistication to make their own decisions, that they are going to rely, almost without exception, on the advice of the professionals, and they can’t begin to understand the web of toxic conflicts of interest that encourage brokers to make recommendations that are not actually in their best interest,” Roper said.

“People don’t know what they don’t know,” said Jonathan Reuter, an associate professor of finance at Boston College’s Carroll School of Management.

“The sorts of people who need financial advice tend to be lower-income, younger, and less experienced. And if you don’t understand financial markets and someone says here’s my standard contract, I don’t know that that’s going to raise red flags or give you an understanding that there are alternatives.”

One of the most concrete outcomes of Regulation Best Interest is that broker-dealers must now give clients a form that describes the services they offer and how they are paid for them, as well as any conflicts of interest or legal obligations they may have. Broker-dealers are also required, in the words of the SEC, to “identify and mitigate any conflicts of interest associated with such recommendations that create an incentive for the broker-dealer’s associated persons to place their interest or the interest of the broker-dealer ahead of the retail customer’s interest,” but Roper argues that the agency never explicitly explains what mitigation should entail.

Reuter, whose past research was one of the models for the defunct Fiduciary Rule, isn’t a fan of Regulation Best Interest, either. “It’s not saying the broker-dealers need to be held to a fiduciary standard or put clients’ interests first,” he said in an interview. “It’s saying they can’t put clients’ interest last.”

But unlike Roper, he sees it as a positive first step. Even if the disclosures seem like useless make-work, he thinks some financial firms may at least start to take to heart some of the spirit of the regulation. And if firms actually develop their own disclosure forms, rather than relying on industry-standard boilerplate, there’s potential for industry observers to collect the information they contain, monitor it, and possibly even develop a grading system for broker-dealers.

Read: Investing legend Burton Malkiel on day-trading millennials, the end of the 60/40 portfolio and more

While the implementation of the new regulation means broker-dealers are under the spotlight, it’s worth noting that many experts have qualms about registered investment advisers as well.

“It’s likely to be a better model for most people because it’s not distorted by commissions,” Reuter said. But it’s hard for many clients to assess RIA fees, he thinks. And that’s if they’re even able to get in the door: most RIAs will only work with clients who meet a certain threshold of assets.

Roper thinks the key is for investors to seek out advisers who voluntarily hold themselves to a higher standard of accreditation. Those with certifications as an Accredited Investment Fiduciary, like Vance Barse, or from the organization called CEFEX (Centre for Fiduciary Excellence) have decided to commit themselves to serving their clients in a fiduciary capacity.

For his part, even though Vance Barse is neither an RIA nor a broker-dealer, he has an affiliation with a large company, Commonwealth Financial Network, that provides the services of both spheres, so he’s gotten very familiar with Regulation BI.

Barse is hopeful it’s a baby step in the right direction. “It’s virtually impossible to eliminate all potential conflicts of interest,” he said. And he believes individual investors have a responsibility to educate themselves on what they want and what they’re getting. Still, the financial services industry has to meet them halfway, he said.

“In medicine, licensed doctors take the Hippocratic oath and I’m of the belief we should have the equivalent in financial services.”

See: Are ETFs safe… for retail investors?

Deep Dive: These stocks, including Tesla and Apple, are the real winners for the second quarter of 2020

This post was originally published on this site

The second quarter was a dramatic one for U.S. stocks — the S&P 500 had its best quarter since 1998.

But many of the best performers were really bounce backs from the doldrums of March, when the market hit bottom during the start of the coronavirus pandemic.

Some stocks are still down for 2020, but there were also some “real” winners — ones that were up significantly in the quarter and the first half of the year.

Below are lists of stocks that rose the most during the second quarter.

• The Dow Jones Industrial Average DJIA, +0.84% climbed 17.8% in the second quarter, but was down 9.6% for the first half of 2020. (All gains and losses in this article exclude dividends.)

• The S&P 500 SPX, +1.54% added 20% in the second quarter, and ended Tuesday down 4% for 2020.

• The Nasdaq Composite Index COMP, +1.87% soared 30.6% during the second quarter and is now up 12.1% for 2020.

There are still hundreds of large-cap U.S. stocks with double-digit declines for the year. To lift the sagging economy, the Federal Reserve is supporting the market with extremely low interest rates and a vast increase in the money supply through securities purchases. In addition, the federal government is giving unprecedented aid to people and businesses affected by the coronavirus pandemic.

Rising forward valuations

Here’s chart showing the S&P 500 trading at its highest forward price-to-earnings valuation since February 2001:


The S&P 500 traded for 21.6 times weighted consensus forward earnings estimates at the close June 30, up from a forward P/E valuation of 18.3 at the end of 2019.

That forward P/E ratio is up, even thought the S&P 500 is down this year, because analysts have cut their earnings estimates following the economic devastation caused by the Covid-19 outbreak. So there are myriad warnings of an asset bubble.

James Bullard, the president of the Federal Reserve Bank of St. Louis, said last week that he didn’t see evidence of an asset bubble. Charles Evans, the president of the Federal Reserve Bank of Chicago, said the economy might need even further stimulus, and that U.S. interest rates may head into negative territory.

Dow Jones Industrial Average

Here’s how the 30 components of the Dow Jones Industrial Average performed in the second quarter:

Company Ticker Price change – second quarter, 2020 Price change – first half, 2020 Price change – 2019
Apple Inc. AAPL, +0.83% 43.5% 24.2% 86.2%
Dow Inc. DOW, -0.53% 39.4% -25.5% N/A
Home Depot Inc. HD, +1.78% 34.2% 14.7% 27.1%
Microsoft Corp. MSFT, +2.55% 29.0% 29.0% 55.3%
Goldman Sachs Group Inc. GS, +2.14% 27.8% -14.1% 37.6%
Chevron Corp. CVX, +1.77% 23.1% -26.0% 10.8%
Boeing Co. BA, -5.75% 22.9% -43.7% 1.0%
Visa Inc. Class A V, +0.93% 19.9% 2.8% 42.4%
Cisco Systems Inc. CSCO, +1.06% 18.6% -2.8% 10.7%
Nike Inc. Class B NKE, +2.27% 18.5% -3.2% 36.6%
UnitedHealth Group Inc. UNH, +1.79% 18.3% 0.3% 18.0%
Exxon Mobil Corp. XOM, +0.90% 17.7% -36.0% 2.3%
Walt Disney Co. DIS, -0.00% 15.4% -22.9% 31.9%
Travelers Companies Inc. TRV, +1.01% 14.8% -16.7% 14.4%
3M Co. MMM, +0.27% 14.3% -11.6% -7.4%
McDonald’s Corp. MCD, +0.91% 11.6% -6.6% 11.3%
American Express Co. AXP, +0.71% 11.2% -23.5% 30.6%
Raytheon Technologies Corp. RTX, -0.48% 10.8% -30.2% 40.6%
Intel Corp. INTC, +2.67% 10.6% 0.0% 27.5%
Caterpillar Inc. CAT, +0.99% 9.0% -14.3% 16.2%
International Business Machines Corp. IBM, +0.85% 8.9% -9.9% 17.9%
Procter & Gamble Co. PG, +1.62% 8.7% -4.3% 35.9%
Johnson & Johnson JNJ, +1.14% 7.2% -3.6% 13.0%
Walmart Inc. WMT, +0.60% 5.4% 0.8% 27.6%
J.P. Morgan Chase & Co. JPM, +1.14% 4.5% -32.5% 42.8%
Verizon Communications Inc. VZ, +0.80% 2.6% -10.2% 9.2%
Coca-Cola Co. KO, +0.72% 1.0% -19.3% 16.9%
Merck & Co. Inc. MRK, +1.59% 0.5% -15.0% 19.0%
Pfizer Inc. PFE, +0.18% 0.2% -16.5% -10.2%
Walgreens Boots Alliance Inc. WBA, +0.16% -7.3% -28.1% -13.7%
Source: FactSet

Scroll the table to see all the data. Click on the tickers for more about each company.

All Dow components except for Walgreens Boots Alliance WBA, +0.16% were up during the second quarter, but only six were up for the first half of 2020.

Apple’s AAPL, +0.83% has been remarkable. The stock was up 43.5% during the second quarter, ending June with a 24.3% gain for the first half of the year.

Other “real” winners among the Dow included Home Depot HD, +1.78% and Microsoft MSFT, +2.55%.

S&P 500

Here’s how the 11 sectors of the S&P 500 performed during the second quarter:

S&P 500 sector Price change – second quarter, 2020 Price change – first half, 2020 Price change – 2019
Consumer Discretionary 32.6% 6.6% 26.2%
Information Technology 30.1% 14.2% 48.0%
Energy 28.7% -37.0% 7.6%
Materials 25.3% -8.0% 21.9%
Communication Services 19.6% -1.0% 30.9%
Industrials 16.4% -15.5% 26.8%
Health Care 13.1% -1.7% 18.7%
Real Estate 12.3% -10.0% 24.9%
Financials 11.4% -24.6% 29.2%
Consumer Staples 7.3% -7.1% 24.0%
Utilities 1.8% -12.6% 22.2%
Source: FactSet

The consumer discretionary sector was the best performer during the second quarter, but its year-to-date performance shows how dramatically it fell before the big comeback. The information technology sector was second-best during Q2. However it was, by far, the best performer in the first half of 2020.

Among the S&P 500, 451 stocks rose during the second quarter, but only 135 were up for the first half of the year.

Here are the 20 best performers among the S&P 500 during the second quarter of 2020:

Company Ticker Price change – second quarter, 2020 Price change – First half, 2020 Price change – 2019
Apache Corp. APA, +1.27% 223.0% -47.2% -2.5%
Halliburton Co. HAL, +4.50% 89.5% -47.0% -7.9%
Marathon Oil Corp. MRO, +2.68% 86.0% -54.9% -5.3%
PayPal Holdings Inc. PYPL, +3.49% 82.0% 61.1% 28.6%
Gap Inc. GPS, +0.87% 79.3% -28.6% -31.4%
EBay Inc. EBAY, +2.22% 74.5% 45.3% 28.6%
Dish Network Corp. Class A DISH, +4.41% 72.6% -2.7% 42.6%
Freeport-McMoRan Inc. FCX, +4.80% 71.4% -11.8% 27.3%
ViacomCBS Inc. Class B VIAC, +1.17% 66.5% -44.4% -4.0%
Abiomed Inc. ABMD, +0.55% 66.4% 41.6% -47.5%
CarMax Inc. KMX, +0.64% 66.4% 2.1% 39.8%
Devon Energy Corp. DVN, +1.97% 64.1% -56.3% 15.2%
D.R. Horton Inc. DHI, +1.52% 63.1% 5.1% 52.2%
Hologic Inc. HOLX, +6.88% 62.4% 9.2% 27.0%
Lennar Corp. Class A LEN, +1.09% 61.3% 10.4% 42.5%
Chipotle Mexican Grill Inc. CMG, +0.61% 60.8% 25.7% 93.9%
Diamondback Energy Inc. FANG, +0.94% 59.6% -55.0% 0.2%
Marathon Petroleum Corp. MPC, +5.59% 58.3% -38.0% 2.1%
Aptiv PLC APTV, +2.97% 58.2% -18.0% 54.2%
Occidental Petroleum Corp. OXY, +2.46% 58.0% -55.6% -32.9%
Source: FactSet

“Real” winners on the list, with tremendous gains in the second quarter but also double-digit gains for the first half of the year, included PayPal PYPL, +3.49%, eBay EBAY, +2.22%, Abiomed ABMD, +0.55%, Lennar LEN, +1.09% and Chipotle Mexican Grill CMG, +0.61%.


Here are the 20 best performers among components of the Nasdaq-100 Index NDX, +1.96% during the second quarter:

Company Ticker Price change – second quarter, 2020 Price change – first half, 2020 Price change – 2019
Tesla Inc. TSLA, +6.98% 106.1% 158.1% 25.7%
MercadoLibre Inc. MELI, +0.50% 101.8% 72.4% 95.3%
DocuSign Inc. DOCU, +0.31% 86.4% 132.4% 84.9%
PayPal Holdings Inc. PYPL, +3.49% 82.0% 61.1% 28.6%
EBay Inc. EBAY, +2.22% 74.5% 45.3% 28.6%
Zoom Video Communications Inc. Class A ZM, +2.00% 73.5% 272.6% #N/A
Lululemon Athletica Inc. LULU, +6.00% 64.6% 34.7% 90.5%
Align Technology Inc. ALGN, +2.98% 57.8% -1.6% 33.2%
Splunk Inc. SPLK, +2.15% 57.4% 32.7% 42.8%
Microchip Technology Inc. MCHP, +2.67% 55.3% 0.6% 45.6%
Cintas Corp. CTAS, +1.04% 53.8% -1.0% 60.2%
Autodesk Inc. ADSK, +3.02% 53.2% 30.4% 42.6%
Synopsys Inc. SNPS, +2.78% 51.4% 40.1% 65.2%
DexCom Inc. DXCM, +1.80% 50.6% 85.3% 82.6%
Seattle Genetics Inc. SGEN, +3.37% 47.3% 48.7% 101.7%
Expedia Group Inc. EXPE, -0.56% 46.1% -24.0% -4.0%
BioMarin Pharmaceutical Inc. BMRN, +0.94% 46.0% 45.9% -0.7%
Cadence Design Systems Inc. CDNS, +2.05% 45.3% 38.4% 59.5%
Nvidia Corp. NVDA, +3.23% 44.1% 61.5% 76.3%
Workday Inc. Class A WDAY, +0.63% 43.9% 13.9% 3.0%
Source: FactSet

“Real” winners included Tesla TSLA, +6.98%, which more than doubled during the second quarter, but also was up an incredible 158% for the first half of 2020.

Others in the “real” category included MercadoLibre MELI, +0.50%, DocuSign DOCU, +0.31%, Zoom Video Communications ZM, +2.00% and several more that showed double-digit (or better) gains for the second quarter and first half of the year.

CityWatch: It’s a reality: New Yorkers brace for a whole new COVID wave

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She was spitting mad on Instagram, as only a cast member of “The Real Housewives of New York City” can be. And why not? The city she famously inhabits is facing a mortal threat from the south.

“I am so disgusted by some of my cast mates and their families,” Leah McSweeney said through a full, cloth face mask, addressing her legions of leahmob followers last week in a video post.

Some reports have named another RHONY cast member, who was supposedly holed up in Boca Raton, Florida, with her 25-year-old daughter, posting on social media about their maskless workouts, maskless dinners with friends and maskless trips to the beach. When the mother-daughter team returned to New York last week, mom was said to have headed straight for the Hamptons, while daughter returned to her city apartment.

Read: Fauci says the American public and U.S. lawmakers are failing at 3 critical things in battle against COVID-19

Or as McSweeney put it so vividly, sprinkled with some rich, New York phrase turns: “Living it up, showing everybody how they’re living it up. Then, in Florida, of course, the surge. They…come back to New York and are out like nothing, not quarantining, not taking this…seriously. And basically laughing in all of our faces….If you think you’re gonna come back and reap the benefits of our hard work and possibly spread…COVID, that is despicable and very déclassé.”

It’s always hard with these reality-TV people to discern where the television drama ends and the real-life drama begins. That is the fun and the frustration of the genre. But shows like this one and cast members like these are geniuses at poking their fingers in the raw emotions, and McSweeney hit a mother lode this time.

After three-plus months of self-isolation, New Yorkers have managed to reverse the coronavirus momentum, turning a COVID hot zone into a fragile COVID success. Other states, led by Florida, Texas and Arizona, shrugged off the dangers, got lucky for a while and have suddenly become the infection’s ground zero, threatening to undo the tentative triumph that places like New York so painstakingly achieved.

Also see: Wearing a mask to halt the spread of coronavirus has a big impact on U.S. economic growth—and Goldman has done the math

Late last week, New York Gov. Andrew Cuomo ordered a tit-for-tat two-week quarantine for all arriving residents of the virus spike states, like the quarantine that Florida imposed on New Yorkers back in March. On Wednesday, the governor will announce if New York has to postpone the long-awaited return of indoor restaurant dining, which had been set for July 6 as part of the city’s Phase 3 of reopening..

It’s all a matter of assessing the latest threat from the it’ll-never-happen-here states.

McSweeney grew up in New York City and Newtown, Connecticut. She studied at the Fashion Institute of Technology and founded the women’s streetwear line Married to the Mob. When she answered the phone at home in Manhattan’s Financial District, she sounded far more chill than she did on Instagram, but no less clear eyed. Like all proud New Yorkers, she knew how seriously city people took the virus and what a surprising social miracle was thereby achieved.

“I spent the first four weeks of the lockdown on Long Island,” she said. “People told me I was crazy when I came back here. But I felt like I had to be on the ground, experiencing what was going on. It was a visceral feeling. I have been here ever since.”

She doesn’t wear a mask when she goes running, she said. But whenever she’s around other people, the mask goes right back on. “By no means am I a perfect quarantiner,” she said. “How can you be? It is hard to do, but we have to. We’re not anywhere near done yet. This is still going on.”

It’s been hugely heartening, she said, to see New Yorkers responding and then discouraging to see others who aren’t. “I have friends whose parents and grandparents have died, and they couldn’t have proper burials. I had a couple of friends commit suicide. We need to respect the people who have been affected. All of us have been.”

She had her first open-air dinner last week with her 12-year-old daughter Kiki and her daughter’s dad, ex-boyfriend Rob Cristofaro, who founded the fashion brand Alife. 

“We went to The Odeon, which is one of our favorite neighborhood restaurants,” McSweeney said. “I wanted to be supportive of them. The setting was a little odd. The waiters were wearing masks. They had tables out in the street, distanced from each other. But it was just so nice to see people enjoying a meal, having wine and talking.”

See: Cuomo to Trump: ‘Put a mask on it’

The one discordant note? “As we were walking back home, seeing the buildings with the boarded up windows.”

Yes, it’s time for those to come down.

But still, she said, she is immensely proud of her city. “Our city is not a city that was built for social distances” she said. “We live on top of each other. We take the subway, all these things that aren’t a part of other places. But who was one that stepped up when it mattered? We were. We were.”

Ellis Henican is an author based in New York City and a former newspaper columnist.

Black homeownership has declined since 2012 — here’s where Black households are most likely to be homeowners

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Blacks Americans are far less likely than their white peers to be homeowners — but in some cities, they have something of a leg up.

A new report from real-estate brokerage Redfin RDFN, +5.95% examined the national homeownership gap. Only 44% of Black families owned their homes as of the first quarter of 2020, compared with 73.7% of white households, Redfin found, based on an analysis of U.S. Census Bureau data.

But on a local level, the Black homeownership rate — and the gap in homeownership between white and Black households — varies widely. Redfin examined these data points across all metro areas with populations over 1 million.

Read more:Rents are softening nationwide — but here’s where they are falling the most

Washington, D.C., was the only city in the country where a majority of Black households were homeowners, with a homeownership rate of 51%. And half of Black families in Birmingham, Ala., were homeowners. That’s a major shift from 2012, when there were six cities where 50% or more of Black households owned their homes, and overall most cities have seen a decrease in the Black homeownership rate.

The decline in Black homeownership since 2012 is a reflection of the impact of the Great Recession. During the housing crisis, Black households faced foreclosure at twice the rate of their white neighbors, largely because Black homeowners were targeted with subprime loans, research shows. The financial hit Black communities took because of the recession was larger than other groups, making it harder for them to recover.

At the other end of the spectrum, only 25% of Black families in Minneapolis are homeowners, the lowest rate in the nation. Minneapolis also had the largest racial homeownership gap in the country, with a 51-point difference between the Black and white homeownership rates.

Metro area Black homeownership rate (2018) White homeownership rate (2018) Median home-sale price (2018)
Washington, D.C. 51% 72% $399,000
Birmingham, AL 50% 78% $199,900
Richmond, VA 49% 75% $246,500
Philadelphia, PA 48% 76% $229,000
New Orleans, LA 47% 73% $215,000
Atlanta, GA 47% 75% $236,511
Memphis, TN 46% 75% $177,000
Baltimore, MD 46% 77% $270,000
Miami, FL 45% 74% $275,000
Raleigh, NC 45% 74% $282,500
Virginia Beach, VA 44% 72% $229,900
Charlotte, NC 44% 75% $242,000
Orlando, FL 44% 70% $244,000
Jacksonville, FL 44% 72% $227,000
San Antonio, TX 44% 71% $223,458
Hartford, CT 43% 77% $219,500
Austin, TX 43% 65% $309,000
Nashville, TN 43% 72% $286,000
Riverside, CA 42% 71% $360,000
Houston, TX 42% 72% $236,990
Detroit, MI 42% 78% $177,000
St. Louis, MO 40% 77% $177,333
Chicago, IL 40% 75% $240,000
Denver, CO 38% 70% $405,000
Tampa, FL 38% 71% $224,990
Kansas City, MO 37% 72% $210,000
Louisville, KY 37% 74% $187,000
Dallas-Ft. Worth, TX 37% 69% $269,900
Indianapolis, IN 36% 73% $178,000
Cleveland, OH 36% 75% $145,714
Oklahoma City, OK 36% 70% $170,000
Tucson, AZ 36% 69% $210,000
Pittsburgh, PA 35% 74% $165,100
Columbus, OH 34% 69% $203,000
Sacramento, CA 33% 67% $395,000
Grand Rapids, MI 33% 78% $195,000
Phoenix, AZ 33% 70% $262,500
Los Angeles, CA 33% 58% $645,000
Boston, MA 33% 69% $455,000
San Francisco, CA 33% 61% $900,000
Cincinnati, OH 33% 73% $175,000
Seattle, WA 32% 65% $479,500
Portland, OR 32% 66% $391,000
Rochester, NY 32% 74% $144,000
Providence, RI 32% 68% $267,500
New York, NY 32% 67% $403,000
Buffalo, NY 32% 73% $149,900
San Jose, CA 31% 65% $1,175,000
San Diego, CA 30% 61% $569,995
Las Vegas, NV 29% 62% $270,500
Salt Lake City, UT 28% 72% $315,000
Milwaukee, WI 27% 70% $206,000
Minneapolis, MN 25% 76% $265,000

A multitude of factors have contributed to the lower rate of Black homeownership in this country. Historically, redlining policies barred Black Americans from accessing mortgage credit, preventing many of them from becoming homeowners in certain neighborhoods.

The term refers to the Federal Home Loan Bank Board and the Home Owners’ Loan Corporation creating color-coded maps designating how risky it was for lenders to originate mortgages in different neighborhoods across the country. The neighborhoods deemed most risky were outlined in red, and those neighborhoods tended to be predominantly Black.

Even before redlining practices existed, deed restrictions prevented people of color from purchasing homes in white communities. Racial covenants within the original deeds to these properties stipulated that only white people could purchase those homes.

Both practices were common throughout the first half of the 20th Century and were officially outlawed through a series of laws passed in the 1960s and 1970s. However, Black Americans are still far less likely to get a mortgage, and investigations have shown that racial bias persists in the real-estate industry.

The long-term effects of those historical policies remain. Homeownership is one of the main drivers of generational wealth in the U.S.; as a result the racial wealth gap remains large. Additionally, home prices are still depressed in historically redlined neighborhoods, which has stunted many Black families’ ability to grow their wealth and pass it on from generation to generation.

Also see:Mortgage rates keep falling to record lows — so is now a good time to refinance?

And the coronavirus pandemic threatens to exacerbate the racial gap in homeownership. “Black and Latino people have been hardest hit by stay-at-home orders and other public-health measures put in place to slow the spread of COVID-19 because of a legacy of occupational segregation,” Urban Institute vice president of housing finance policy Alanna McCargo and senior fellow Solomon Greene, wrote in a recent report.

Black and Latino households are disproportionately struggling to pay the rent, and those financial setbacks could make it more difficult to afford buying a home down the road. Additionally, 28% of black homeowners did not pay or deferred their mortgage payment in May, compared with just 9% of white homeowners, the Urban Institute reported.

The man who paid off the student debt of 400 Morehouse University graduates has a new initiative to help borrowers

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Last year, billionaire Robert Smith shocked roughly 400 graduates of Morehouse College (and the world) when he announced that he would pay off their student debt.

Now, he’s back with an initiative he says will address the challenges Black student-loan borrowers face on a broader scale. The through nonprofit, called the Student Freedom Initiative, Smith is aiming to “create a sustainable, pay-it-forward model,” for funding higher education, he told TIME in an interview.

Smith plans to do this by helping students pay for college through what SFI calls income-contingent funding. Essentially, a participant would agree to repay the money as a percentage of their income over a certain period of time.

The organization is still in the process of determining the terms of the financing, which will be offered initially to juniors and seniors studying science, technology, engineering and math at 11 Historically Black Colleges and Universities starting in fall 2021.

Consumer advocates are watching closely

Consumer advocates are watching the rollout of the initiative closely as they worry the product could look like some they’ve found troubling in the student-finance industry.

“The potential for this type of funding mechanism to have a role to play in reducing the racial disparities when it comes to student loans — it truly will come down to the details of who has access to it, and what their experiences are in repayment,” said Dominique Baker, an education-policy professor at Southern Methodist University.

Watching for similarities to income-share agreements

In particular, consumer advocates are concerned that SFI’s program appears to share some features with income-share agreements. These deals, which are becoming increasingly prevalent at universities across the country, allow borrowers to finance their tuition by pledging a percentage of their future earnings.

Advocates and some prominent lawmakers have criticized the organizations offering ISAs for being vague about their terms, putting students at risk of paying more than what they might under a traditional loan and trapping borrowers in debt for a long period of time. They’ve also said that ISAs run the risk of discriminating against certain types of borrowers by tailoring the terms of the financing to students’ area of study.

Though SFI hasn’t announced much about the terms of the product they plan to offer, those working on its design say it will differ from ISAs in key ways.

For one, everyone who is eligible to participate in the program will have the same terms; there won’t be different income percentages or periods of repayment for different majors, said Michael Stynes, the chief executive officer of the Jain Family Institute, a nonprofit research organization. The institute, which is partnering with SFI on the design of the program, has also provided expertise to ISA funds and income-contingent financing initiatives.

In addition, a participant’s cost will never be higher than the cost of a Parent PLUS loan or private loan as measured by the annual percentage rate or APR, Stynes said. In some ISAs, the APR participants pay can vary and often be quite high depending on their salary. During periods where participants aren’t earning income, they won’t be required to make payments, including for the entire duration of the contract, Stynes said.

“It keeps a lot of the downside protection,” of ISAs, said Stynes, “but doesn’t have nearly as much upside risk for students.”

Consumer advocates say they’ll be watching to see how SFI approaches some of the thornier issues associated with ISAs. These include questions like: How will borrowers’ income be evaluated for purposes of deciding how much they repay? How much discretionary income will a borrower whose earnings are low be left with under the terms of the agreement? How long will the repayment term be? Who will SFI hire to collect payments from borrowers? Since this product would be a complement to federal student loans, would there be a scenario in which a borrower is eligible to pay nothing on their federal loan, but still has to pay towards their SFI obligation?

Joanna Darcus, a staff attorney at the National Consumer Law Center, has criticized ISAs for failing to disclose the full cost and risks of their products to students and for skirting existing consumer protection laws governing loans by defining their products differently. Darcus said there is still time before SFI begins backing students for its product to steer clear of these issues, adding she’s eager to see its terms.

“In these situations the terms and the fine print always matter,” Darcus said. “Particularly when a product is targeted at serving a particular community or communities, as consumer advocates, we must focus on ensuring that we look to see whether that product actually delivers value and is likely to promote prosperity for the people it claims to serve.”

Student-debt crisis among Black borrowers

SFI’s aim is to help mitigate the student-debt crisis among Black borrowers, who struggle disproportionately with student loans thanks to generations of wealth inequality and discriminatory practices.

The gulf in wealth between Black and white families means that Black students have less of a cushion to draw from when paying for college and so they typically need to borrow more. In addition, thanks to inequalities in the kindergarten through 12th grade education system and the college admissions process, Black students have historically had limited access to the wealthy institutions that can afford to offer generous financial aid.

Instead, the schools they disproportionately attend, including HBCUs, have fewer resources available to provide financial aid to students. Finally, when Black students graduate, they can face well-documented discrimination in the labor market, which means they have less money to use to repay their student loans.

SFI’s goal with its program is to help address some of these issues. Because Black families often need financing for college that extends beyond the maximum available from federal student loans, they’re forced to turn to other, riskier products. Parent PLUS loans have higher interest rates than federal student loans and they offer very limited flexibility in repayment. Private loans operate similarly.

Research indicates that where Parent PLUS loans are often used as a tool to provide some liquidity for middle and upper-middle class white families, for Black families they can be the only option available for a household with less wealth. SFI is hoping to relieve that burden with its product.

SFI and its backers are confident they have developed a structure for the fund backing students that will offer attractive terms for participants and be self-sustaining, Stynes said. The program has received a $50 million pledge from the Fund II Foundation, a charitable organization of which Smith is president, and supporters are committed to raising $500 million more by the end of this year. The idea is that the fund will be able to sustain itself and even scale up to offer backing to STEM students at all HBCUs through efficient access to capital markets and payments from participants.

So far, the only large-scale fixes to the Black student-loan crisis have come from private philanthropy. That it’s too expensive to make college and student debt affordable for Black students and families unconditionally, “shows the limitations of relying on private solutions to what is fundamentally a public policy problem,” said Ben Miller, the vice president, postsecondary education at the Center for American Progress, a left-leaning think tank.

Despite SFI’s confidence, Miller said he’s not sure how much room there is between offering students a good deal and creating a product that can make enough money to at least keep the fund sustaining itself. If it is possible, Miller said he wonders then who the product will be able to serve.

“You can replace unaffordable debt with slightly more affordable debt,” Miller said. “But you still have the policy problem and I don’t think there’s a private sector solution to that.”

Help Me Retire: I have a seven-figure nest egg — am I saving too much for retirement?

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I recently had a conversation with a colleague about retirement and was told I’m saving too much! My wife and I are both 57 and have been aggressive savers ever since my brother, an institutional retirement financial expert, told us to max out our savings when we were 25 years old. As a result, we have saved 25-30% of our income and invested aggressively over the years. We have a very healthy nest egg in the low- to mid-seven figures and no debt other than our home, which is very low interest and will be paid off before retirement. Our children have no student debt. My colleague says we are “postponing” our lives and creating tax problems for when we retire. We have never felt like we have missed out on anything by saving and have lived a full life but is there such a thing as saving too much?


Live for today or save for tomorrow?

Dear Live for Today or Save for Tomorrow,

I’ll start with the answer you may not have expected: Yes, there is such a thing as saving too much money, financial advisers said. That doesn’t necessarily mean you personally have saved too much, though.

Having an “overfunded” retirement isn’t a bad problem to have, but it does raise the question: what are your goals for your finances, the present and your future, and are you meeting them? A big pile of money is great, but it’s even better when you get to use it the way you want. There is no one right answer here, as the situation differs from person to person.

There is a balance between saving for the future and living for today, and sometimes, people do overcompensate in one area.

“It is important for each person to think about this and determine where their balancing point is,” said Mark Beaver, partner and senior financial adviser at Keeler & Nadler. There are scenarios where people do so much planning and saving for the future, and then they’re robbed of that future for unforeseen and devastating reasons. Or they live it up in the moment and spend more than they save in the present, only to end up with little to no money to rely on in their old age, he said.

See:I’m a 32-year-old stay-at-home mom, and my husband earns $150,000 a year. Will I ever be able to enjoy a retirement?

Your colleague isn’t wrong to suggest that some people do “postpone” their lives in the name of aggressively saving, but that could only happen if you’re living so frugally today that you’re not enjoying your life now. Some people save aggressively because they’re afraid of running out of money later in life, said Christopher Woods, a financial adviser and founder of LifePoint Financial Group. “There are also others who are happy with their lifestyle and don’t see how spending more will make them any happier,” he said. “And that’s perfectly fine.”

But now for the good news: In your particular situation, it doesn’t appear that you’ve saved “too much,” said Joel Cundick, a financial adviser at Savant Capital. “If this couple has never felt like they are missing out and have had a full life thus far while accumulating a seven-figure balance sheet, that is the textbook definition of financial success,” he said.

The balancing point, Beaver said, lies in how you feel about the present while you save for the future. “If it’s keeping you from living the life you want right now because you’re only looking at tomorrow, that is probably too much,” he said. You should aim for financial security, but also put your money toward your values, which may include experiences, said Ashley Gragtmans, a behavioral financial adviser at Parsec Financial. “In general, I think it’s hard to ‘save too much,’ but if you lack joy along the way, something needs to be re-evaluated,” she said. You noted you have not had that problem.

So, what can you do from here?

Your colleague may be right about setting yourself up for hefty tax bills in the future. How much is owed will depend on many factors, including how much you withdraw in a given year and how you diversify the accounts you withdraw from.

For example, you can use traditional retirement plans, which are funded with pretax dollars, as well as Roth accounts, which contain after-tax dollars. When it comes time to withdraw from those assets, the money from the traditional account will be taxed at ordinary income rates, while the latter will be a tax-free distribution. There are pros and cons to using these accounts though, so you have to see what is best for your situation. There are various alternatives and supplemental accounts as well to save money, such as taxable investment portfolios and life insurance. A financial adviser could help you avoid excessive tax burdens and strategize so that you’re getting the most out of your money.

Although you seem to have your nest egg in order, there are questions you can ask yourselves so that your retirement plan is well-rounded, said Nadine Burns, president and chief executive officer of A New Path Financial. Questions to consider include: do you have additional income to supplement your retirement, like a pension? When do you plan to claim Social Security and how does that fit into your expected retirement age? (If you retire before you claim, you’ll have to draw down some of those assets before you start receiving benefits.) Are there any health issues in the family, such as dementia, that may warrant long-term care planning? And what do you want to do with your retirement, so that the money you’ve been saving is used well?

Aside from planning accordingly for the rest of your years, if you intend to leave money to loved ones or charities, you should have a clear estate plan written up so that your wishes are met, Cundick said. Some advisers have seen their super-saver clients become “super-givers,” like Leon LaBrecque, chief growth officer at Sequoia Financial Group. “I love saving,” he said. “However, money is nothing but a piece of paper with a picture of a dead president on it until you get rid of it. You can save it for you or save it for others.” Charitable giving can also lessen the burden of tax obligations.

Also see: All the tax-friendly ways retirees can donate to charity

Having an estate plan ensures your hard-earned savings are being used the way you intended them to be used. However, you should consult with a financial professional, especially as rules can change. For example, the Secure Act passed in December eliminated the stretch IRA provision for inherited accounts, which could force loved ones to pay much more in taxes than you’d like.

But back to the present: Make sure to continue enjoying life now while you save and prepare for retirement, said Michael Simmons, director of financial planning at Transitions Wealth Management. “At some point, you may have the financial resources but lack the health or even the desire for things such as travel,” he said.

In the meantime, you should pat yourselves on the back, said Liz Gillette, a financial adviser at MainStreet Planning.

“For most of us, investing versus spending is a competing priority that we work to manage. Living life in the now because life is uncertain but saving/investing enough so we don’t compromise our future selves,” she said. “As long as that money can be used in ways that serves their values and priorities, I certainly wouldn’t say they have saved ‘too much.’”

Letters are edited for length and style.

Have a question about your own retirement savings? Email us at

Key Words: Fauci makes dire warning for America in the ongoing fight against coronavirus

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Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases for three decades and one of the leading experts on pandemics in the U.S. for the last four decades, on Tuesday made a dire warning for the U.S. in the ongoing battle to control the spread of COVID-19.

Fauci said SARS-CoV-2, the official name for the novel coronavirus that causes the disease known as COVID-19, new cases will continue to appear unless lawmakers and the U.S. public start to take social-distancing rules seriously. He said the recent surges were “disturbing.”

‘I would not be surprised if we go up to 100,000 a day, if this does not turn around.’

— Anthony Fauci, National Institute of Allergy and Infectious Diseases

“I would not be surprised if we go up to 100,000 a day, if this does not turn around,” he said. The number of confirmed coronavirus cases hit a new daily high of 40,000 last week, the highest number of daily cases since they reached 36,400 in a 24-hour period in April.

He was speaking Tuesday at the Senate Health, Education, Labor and Pensions Committee in Washington, D.C., alongside other government officials, including Robert Redfield, director of the U.S. Centers for Disease Control and Prevention.

The COVID-19 pandemic, which was first identified in Wuhan, China in December, had infected 10,424,992 people globally and 2,534,981 in the U.S. as of Tuesday. It had claimed at least 509,706 lives worldwide, 129,545 of which were in the U.S., according to Johns Hopkins University.

The Dow Jones Industrial Index DJIA, +0.30% and the S&P 500 SPX, +1.08% were slightly higher Tuesday, despite the surge in coronavirus cases in some of the most populous states in the U.S., including California, Florida and Texas.

The coronavirus pandemic is “not even close to being over,” according to the head of the World Health Organization, and the worst is still to come, in what was a grim assessment of the state of affairs some six months after the first cases were reported in China.

The EU left the U.S. off its list of countries whose residents will be able to travel there without travel restrictions.

“Six months ago, none of us could have imagined how our world — and our lives — would be thrown into turmoil by this new virus,” Tedros Adhanom Ghebreyesus told reporters at a news briefing on Monday. “The pandemic has brought out the best and the worst of humanity.”

Also Tuesday, the European Union left the U.S. off its list of countries whose residents will be able to travel into the 14-bloc nation without travel restrictions. The U.S. must ensure that new COVID-19 cases over the last 14 days and per 100,000 inhabitants are close to or below the EU average.

Citizens of Australia, Canada, Japan, New Zealand, South Korea, Thailand, Uruguay and China, “subject to confirmation of reciprocity,” will all be able to travel to the EU as of July 1. While the virus’s spread has stabilized in Europe, cases have been rising in the last 14 days in 35 U.S. states.

How COVID-19 is transmitted

Commodities Corner: Gold looks to post largest quarterly gain in 4 years; talk of record prices by year end grows

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Gold futures posted a gain of more than 12% for the three-month period ended Tuesday, the largest quarterly percentage climb since 2016, with analysts renewing talk of record prices by year end.

Gold’s performance so far this year is “not attributed to the pandemic,” said Alex Ebkarian, chief operating officer at Allegiance Gold. “COVID-19 simply exasperated the underlying weaknesses as evident by the negative real interest rates and further weakening of the dollar.”

In Tuesday dealings, the August gold contract GCQ20, +0.99% was trading at $1,798 an ounce. Based on the most-active futures contracts, prices were poised to end the second quarter with a gain of 12.6%, according to FactSet data. That would be the largest quarter percentage rise since March 2016. Year to date, prices were up around 18%.

Gold accelerated its move towards record highs in the second quarter of this year, as it was “already set on this trajectory” before the seriousness of the coronavirus was even realized, said Peter Spina, president and chief executive officer at

The reaction to COVID-19 over the last quarter was of “historic proportions,” with global debt now soaring and governments injecting trillions of dollars into their economies. Under those conditions, gold is a “lower risk shelter to seek refuge,” said Spina.

A weaker U.S. dollar also contributed to dollar-denominated gold’s hefty gain for the quarter. The benchmark ICE U.S. Dollar Index DXY, -0.20% trades more than 1% higher year to date, but was down 1.7% for the second quarter.

Still, there were times so far this year where the usual inverse relationship between gold and the dollar didn’t apply because of a significant shortage in gold supply following the shutdown of the miners, refineries, and mints, and the selloff in gold for liquidity needs to cover short positions, said Ebkarian.

The direction of real interest rates matters the most, he said. Since those are near zero in the U.S., “gold’s position is far more compelling than bonds.”

Looking ahead, he said he’s paying close attention to any further weakening of real interest rates, as well as an increase inflation. Gold can be used as a hedge against inflation.

Ebkarian also said there could be a second wave of COVID-19 infections, which “could yet again halt parts of our economy.”

“Considering the trifecta global, financial and health crisis, uptick in inflation, market uncertainties, [and] weakening dollar, investors can best position themselves by moderately, proactively diversifying a portion of their portfolio in physical commodities and taking a mid- to long-term approach,” he said. “History tells us that post government and Fed interventions and bail outs, gold could double and silver quadruple, as it did between 2008 and 2011.”

‘With everything going on, gold could take a step back, but only to take a few more steps forward. Gold has only one way to go, and that is up.’

— Alex Ebkarian, Allegiance Gold

For the second half of the year, before the outcome of the U.S. presidential elections, Allegiance Gold anticipates prices for the yellow metal to be between $1,800 and $2,000 an ounce, said Ebkarian.

Gold may top $2,000 with Joe Biden in office as president “as investors will be concerned about the uncertainty of U.S. policies moving forward,” he said. If President Donald Trump gets a second term as president, the gold market “could trade momentarily either at the current prices or slightly below,” though he also points out that since Trump took office, gold has gone up by roughly 50%.

Either way, Allegiance Gold’s 24-month outlook shows gold surpassing $3,000, “as uncertainties with the pandemic, unemployment rate, weakening dollar and debt burden remain,” he said.

Spina, meanwhile, expects gold to break to all-time record highs “within the next couple of quarters,” and said $2,000 and higher gold is “coming.”

Gold futures saw a record settlement of $1,891.90 on Aug. 22, 2011, according to Dow Jones Market Data, based on records dating back to November 1984.

Read:Gold may reach a record by year end as investor need creates ‘more demand than the market can handle’

“With everything going on, gold could take a step back, but only to take a few more steps forward,” said Ebkarian. “Gold has only one way to go, and that is up.”

Key Words: Fauci has harsh words for the American public AND lawmakers as COVID-19 surges in Florida, California and Texas

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Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases for three decades and one of the leading experts on pandemics in the U.S. for the last four decades, delivered some stern words to both the U.S. public and federal authorities.

Fauci said SARS-CoV-2, the official name for the novel coronavirus that causes the disease known as COVID-19, will continue to spread unless everyone steps up their game. He was speaking Tuesday at the Senate Health, Education, Labor and Pensions Committee in Washington, D.C., alongside other government officials, including Robert Redfield, director of the Centers for Disease Control and Prevention.

Fauci said many states have reopened too quickly, and people are not abiding by rules of social distancing. “What we saw were a lot of people who maybe felt that because they think they are invulnerable, and we know many young people are not because they’re getting [this] serious disease; therefore they’re getting infected has nothing at all to do with anyone else when, in fact, it does,” Fauci told the Senate committee.

The COVID-19 pandemic, which was first identified in Wuhan, China in December, had infected 10,424,992 people globally and 2,534,981 in the U.S. as of Tuesday. It had claimed at least 509,706 lives worldwide, 129,545 of which were in the U.S., according to Johns Hopkins University’s Center for Systems Science and Engineering. The Dow Jones Industrial Index DJIA, +0.25% and the S&P 500 SPX, +0.96% were slightly higher Tuesday, despite the surge in coronavirus cases in some of the most populace states in the U.S., including California, Florida and Texas.

“What has happened, I guess understandably, but nonetheless regrettably, is that people took the attitude in some places of either ‘all or none,’” Fauci said earlier on CNN. “Either you’re locked down, or you just let it fly, and you just ignore many of the guidelines of physical distancing, of wearing a mask … not wearing a mask, avoiding crowds.”

‘We do need to open up again, no doubt about it, we want to get the economy back, but you’ve got to do it in a measured way, and now we’re seeing the consequence of community spread, which is even more difficult to contain.’

“You see pictures on the TV that, even in states that are telling their citizens to do it correctly, they’re doing that” Fauci told CNN on Monday.“There are crowds, they’re not physical distancing, and they’re not wearing masks. That’s a recipe for disaster.”

“We do need to open up again, no doubt about it, we want to get the economy back, but you’ve got to do it in a measured way, and now we’re seeing the consequence of community spread, which is even more difficult to contain than spread in a well-known physical location like a prison or a nursing home or a meat-packing place.”

He added, “When you have community spread, it’s insidious, because there are so many people in the community who are infected, but asymptomatic. It makes it extremely problematic to do efficient contact tracing, because most of the people who are infected don’t even know they’re infected. So how do you do contact tracing when someone doesn’t have any symptoms?”

Fauci said the U.S. government has not been doing well with contact tracing, the process of tracing people who have been in contact with someone who has the virus, and instructing them to stay home for 14 days. “I don’t think we’re doing very well, for a number of reasons, and not all of which is the fault of the system.” Elizabeth Cohen, who interviewed Fauci for CNN, and has interviewed him for a number of years, said the doctor appeared “frustrated” with the lack of urgency to take the most recent surges seriously.

In Cohen’s interview, Fauci said some people close to the border are reluctant to give names to authorities to trace, while other names that are given to health authorities “are lost in the shuffle. That’s a very, very difficult situation. That we’ve got to do better on.”

In states where coronavirus spread is surging like Arizona, Texas, Florida and California, he said, “20% to 40% of the people who are infected don’t have any symptoms, so the standard, classic paradigm of identification, isolation, contact tracing doesn’t work no matter how good you are, because you don’t know who you’re tracing.”

‘Twenty percent to 40% of the people who are infected don’t have any symptoms, so the standard, classic paradigm of identification, isolation, contact tracing doesn’t work no matter how good you are, because you don’t know who you’re tracing.’

— Anthony Fauci, National Institute of Allergy and Infectious Diseases

Fauci previously said that was the single biggest threat and surprise about COVID-19. “I’ve been dealing with viral outbreaks for the last 40 years. I’ve never seen a single virus — that is, one pathogen — have a range where 20% to 40% of the people have no symptoms,” he said last week during a House Committee on Energy and Commerce hearing on the Trump administration’s response to the novel coronavirus pandemic.

The coronavirus pandemic is “not even close to being over,” according to the head of the World Health Organization, and the worst is still to come, in what was a grim assessment of the state of affairs some six months after the first cases were reported in China. “Six months ago, none of us could have imagined how our world — and our lives — would be thrown into turmoil by this new virus,” Tedros Adhanom Ghebreyesus told reporters at a news briefing on Monday. “The pandemic has brought out the best and the worst of humanity.” Tedros said WHO is sending a team to Wuhan, China next week to work on the virus’s origins.

The WHO currently estimates that 16% of people with COVID-19 are asymptomatic and can transmit the coronavirus, while other data show that 40% of coronavirus transmission is due to carriers not displaying symptoms of the illness. As a result, public health officials have advised people to keep a distance of 6 feet from one another.

A recent University of California, San Francisco, study found that there’s a high load of SARS-CoV-2 shedding in the upper respiratory tract, even among pre-symptomatic patients, “which distinguishes it from SARS-CoV-1, where replication occurs mainly in the lower respiratory tract.” Such a viral load makes symptom-based detection of infection less effective in the case of SARS CoV-2, it said.

After two months of obfuscation over the efficacy of face masks, during which New York City became the epicenter of the pandemic in the U.S., and one month after the WHO declared the COVID-19 outbreak a pandemic, U.S. federal authorities said all Americans should, after all, wear face coverings in public settings.

Fauci has said he was hopeful that a coronavirus vaccine could be developed by early 2021, but said it’s unlikely that a vaccine will deliver 100% immunity; he said the best realistic outcome, based on other vaccines, would be 70% to 75% effective. The measles vaccine, he said, is among the most effective by providing 97% immunity.

How COVID-19 is transmitted

FA Center: Here are your odds the stock market will be higher on Dec. 31

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There’s a two-out-of-three chance the stock market will be higher at the end of the year. Pretty good, except those odds would be the same even if 2020 didn’t have the COVID-19 pandemic, a U.S. presidential election, and if the S&P 500 SPX, +1.46% had banked a year-to-date gain so far rather than a loss.

This helps make a crucial point about how the stock market operates. Because its level at any given time reflects all known information up to that point, the odds of future gains are almost always remarkably similar. If the odds were somehow much higher or lower, then the market would immediately rise or fall to reflect that, bringing the probability of future gains back into equilibrium.

And over any six-month period, those odds are close to two out of three. To illustrate, imagine hypothetically that the stock market always rose in the second half of presidential election years. If that were the case, investors wouldn’t wait until July 1 to increase their equity exposure — they’d do so in advance. That future gain would thereby get translated to June of presidential election years, leaving the second half of such years with no better than average odds of gaining.

This process of discounting the future wouldn’t stop there. As investors came to know about the impressive odds in June of presidential election years, they would jump the gun and translate those gains to May, and so on, until these odds more or less equaled out over time.

The accompanying chart presents the relevant data for the Dow Jones Industrial Average DJIA, +2.32% since its creation in 1896. In the second halves of the 123 calendar years since then, the market has risen 82 times — precisely two-thirds of the time. The chart also shows that, depending on how you slice and dice the data, the odds appear to be slightly higher or lower than that. However, none of the chart’s differences is significant at the 95% confidence level that statisticians often use when determining if a pattern is genuine.

For example, the historical odds of the market rising in the second half of the year fall to 57% when the market has lost ground over the first half of the year. Yet in past presidential election years, the market from July through December has risen 80% of the time. Both of these odds apply to this year, and their average is remarkably close to two out of three.

Market efficiency

This discounting process is the hallmark of market efficiency. So it’s worth reviewing the evidence — a refresher course in humility when thinking about the odds of beating the market.

Exhibit A in making this case for market efficiency is how so few investment managers beat the market, and how much fewer of those who beat the market in one period end up doing so in the subsequent one. That evidence is widely known.

The evidence I want to highlight comes from the dismal real-world performance of stock-picking strategies that initially received academic seals of approval. Consider a landmark follow-up study of 452 stock-picking patterns (known in the academic world as “anomalies”) that were originally documented in major finance journals (most of which were peer reviewed). The study, “Replicating Anomalies,” was published in the May 2020 issue of The Review of Financial Studies; its authors are Kewei Hou and Lu Zhang of Ohio State University, and Chen Xue of the University of Cincinnati.

The researchers report that they were unable to replicate the vast majority of the anomalies at appropriate levels of statistical significance. They furthermore found that, for the minority that they could replicate, the anomalies were much weaker than originally reported.

No doubt there are many individual explanations for why this or that anomaly turned out not to persist after its initial discovery. But, overall, the evidence for market efficiency is incredibly strong.

The bottom line? If you’re a glass-half-full investor, you can celebrate that there is a two-out-of-three chance the stock market will be higher on Dec. 31. The glass-is-half-empty among you will focus on the one-out-of-three chance that it will not.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at

More: The Nasdaq isn’t just beating the Dow and S&P 500, it’s having one of its best first-halves ever against its stock-market peers

Also: There is a ‘right thing’ to do when the market tanks

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