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Weekly Market Digest: Thinking About an Emergency Fund?

This week saw markets focus in on two important developments that have been a common thread in the second quarter: The US/China trade war and the Federal Reserve’s potential pivot towards accommodative monetary policy.

On the trade war front, market participants are watching closely as talks between President Trump and China’s President Xi Jinping are set to take place on Saturday as they attend the G20 summit in Osaka, Japan. A deal between the two nations this weekend could help ease concerns around the health of the global economy and make it easier for companies to conduct business overseas.

Last week, comments out of the Fed pointed to an increased probability of a July cut in rates, leading some to wonder whether the Federal Reserve would bend to the political pressure being applied by President Trump, or if they really did see significant slowing in the economy. This week, Fed Chairman Jerome Powell addressed some of that concern by assuring that the Fed is “insulated from short-term political pressures.”

These two factors (trade and monetary policy) are closely intertwined. On one hand, a deal between the US and China would be viewed as a positive development for global economic growth and could be rewarded by market participants. On the other hand, a trade deal could improve the Fed’s perceived global risk picture and decrease the likelihood of a rate cut, which could potentially upset markets. In the end, what the net effect on the markets will be remains to be seen.

Weekly Returns

S&P 500: 2,942 (-0.3%)
FTSE All-World ex-US (VEU): (+0.4%)
US 10 Year Treasury Yield: 2.01% (-0.04)
Gold: $1,410 (+0.8%)
EUR/USD: $1.137 (0.0%)

Major Events

  • Monday – Corporate earnings expectations continue to decline as multinational companies grapple with tariffs.
  • Tuesday – Federal Reserve Chairman Jerome Powell speaks at an event in New York, assuring that the Fed is “insulated from short-term political pressures.”
  • Wednesday – Treasury Secretary Steven Mnuchin signals in an interview that the US and China are getting close to a deal. He says “we were about 90% of the way there and I think there’s a path to complete this.” US stocks ended the day mixed as investors await results from upcoming trade talks.
  • Thursday – Three biotech companies BridgeBio Pharma Inc., Adaptive Biotechnologies Corp. and Morphic Holding Inc. all had hot starts in their initial public offerings on Thursday, gaining over 62%, 101%, and 20% respectively.
  • Friday – US stocks wrap up the second quarter on a positive note with the S&P 500 gaining 0.58% for the day and 3.8% for the quarter.

Thinking About Your Emergency Fund?

One crucial component of a strong financial plan, and one that we discuss frequently with our clients, is an adequately funded emergency fund. How much you should have saved in an emergency fund will vary and depend largely on your unique situation, but as a general rule of thumb individuals should have enough cash to cover three to six months of expenses based on your average monthly spending. Where you fall in that range can be affected by factors such as how secure your current employment situation is, how confident you are you could quickly find replacement work if necessary, health concerns, family that depends on your income, etc.

Having an underfunded emergency reserve could deal a devastating blow to a financial plan in the case of an unexpected expense or the sustained loss of an income stream. On the flip side of the coin, an over funded emergency fund can also act as an unnecessary drag on progress towards your long-term financial goals. Determining the right number for you should be discussed with your advisor.

Once you’ve determined an amount for your emergency fund you’ll need to figure out where to hold those assets. We recommend folks keep their emergency assets safe in a cash account with a competitive yield. This way, you’ll have peace of mind that you have a safety net when life throws you a curveball. It may be tempting to invest those dollars in the markets and try to beat yields on a cash account, but subjecting your emergency assets to unpredictable volatility can result in an underfunded emergency fund right when you need it most. You may end up being forced to sell in a falling market in order to raise the cash you need for expenses. When it comes to your emergency fund, you should not compromise on safety.

We recently introduced Personal Capital Cash™*, offering a new high-yield account starting at 2.30% APY**. And it’s not just for our current users or wealth management clients, it’s for everyone.

Personal Capital Cash is very different than other accounts you’re used to — with an APY that is 23x the national rate***, up to an aggregate of $1.25 million in FDIC insurance****, no account minimums, no fees, and flexible deposits and transfers, it does more than just stash your cash.

* Personal Capital Cash is offered through Personal Capital Services Corporation (Personal Capital), which is not a bank. To participate in the program, you must open an account at UMB Bank, n.a., Member FDIC, through which your funds will be placed in accounts at participating program banks. The advertised interest rates are paid by participating program banks, not by UMB. Your funds will be FDIC insured up to applicable limits while in transit through UMB Bank. Personal Capital receives a fee from each Program Bank in connection with the Program that is based on the aggregate daily closing balance of deposits held in Program Accounts by such Program Bank. The fee may vary from Program Bank to Program Bank and will generally increase as the aggregate amount of funds held in Program Accounts with the Program Bank increases. See additional disclosures here.

** The Personal Capital Cash Annual Percentage Yield (APY) as of June 11, 2019 is 2.30% APY 2.274% interest rate. The calculation for APY is rounded to the nearest basis point. For Personal Capital advisory clients, the APY is 2.35% (2.323% interest rate). Both the interest rate and APY are variable and subject to change at our discretion at any time without notice.

*** The national rate is calculated by the FDIC as of June 11, 2019 based on a simple average of rates paid (uses annual percentage yield) by all insured depository institutions and branches for which data are available. Savings account rates are based on the $2,500 product tier. Account types included in the FDIC calculation are those most commonly offered by the banks and branches for which they have data – no fewer than 45,000 locations and as many as 81,000 locations reported. The deposit rates of credit unions are not included in the calculation. Visit www.FDIC.gov for details. In this calculation, we are using the current national rate of 0.01%. More than $900 million in lost interest assumes the Personal Capital Cash interest rate of 2.30%.

**** FDIC insurance up to $250,000 (including principal & interest) per depositor per program bank. The cash balance you place through the program is swept to one or more program banks where it earns a variable rate of interest and is eligible for FDIC insurance. If the number of program banks changes, the aggregate amount of available FDIC insurance could be higher or lower. If you have deposits at a program bank, you should consider electing not to use that bank by following the opt out instructions we provide. If you do so, the aggregate amount of FDIC insurance available to you will be lower. If you do not do so, your existing deposits and deposits through Personal Capital Cash at that program bank will be combined for the purposes of FDIC coverage, which could result in some of your funds at that program bank being uninsured.For more information on FDIC insurance coverage, please visit www.FDIC.gov. Customers are responsible for monitoring their total assets at each of the program banks to determine the extent of available FDIC insurance coverage in accordance with FDIC rules. Funds you place through Personal Capital Cash are not covered by SIPC.

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