Inflation data continued to surprise to the upside with last week's CPI reading shocking markets and lead the Federal Reserve to announce another 75bps rate hike yesterday. The fed funds rate is now in the target range of 3% to 3.25%. In our opinion inflation has likely peaked but remains elevated enough that a quick dovish pivot by the central bank is not in the cards. You'll remember from our note last year (here) that when the Federal Reserve begins tightening policy and raising interest rates it is essentially the economic equivalent to a punch bowl being pulled away at a party. While we were not surprised that the Fed was tightening policy we have been surprised by the speed of policy change. For perspective, at the beginning of the year markets were pricing in a federal funds rate at sub 1%, now futures markets are pricing in a rate...
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Economic growth spiked coming out of the pandemic trough in 2021 with the aid of aggressive fiscal & monetary support. Late in 2021 that growth began to cyclically slow down leading to volatility in the first half of this year followed by sizable rallies and selloffs. The selloffs have been exacerbated by geopolitical shocks, tightening monetary policy, and inflation. The rallies have been characterized by optimism that these sources of contention are showing signs of dissipating amid record low sentiment in equity pricing. At the center of these contentions is inflation. High inflation is typically an offshoot of strong economic activity and loose monetary policy. Symmetry implies that a slowdown in economic growth should coincide with a peak in inflation which would be a welcomed respite for investors allowing the Fed to lighten up on rate hikes. This “dovish pivot” was the root of the 17% rally in the... 
All investing, when distilled down to its core, is outlaying cash in the present, to receive more cash in the future. In the world of equity investing this is most apparent in dividend stocks where you pay an initial price for shares (cash outflow) and then receive intermittent dividend payments while you own the stock (cash inflow), and if desired can sell the stock in the future (cash inflow). These dividends are typically paid out from the cash left over after a business runs its operations and (ideally) has profit left over. From an investors perspective dividend payments can be reinvested back into shares of the same or different company which will produce even more dividends, and so on and so forth. This is what contributes to the compounding effect of stocks and why over long periods of time make great investment vehicles. The broader equity market has struggled... 
There is no shortage of indicators used by investors to gauge where the market is going in the short term but many are unreliable at best, and the ones that are attested usually get arbitraged out over time. In our last note we mentioned that historically when the market enters bear territory we are closer to the end of a drawdown rather than a beginning. But the selloff so far this year has been relatively orderly. The VIX, also known as the “fear gauge” is an index which uses S&P 500 options pricing to derive the expected volatility of the overall market. When the VIX is high that usually indicates that there is an elevated level of fear among investors signaling the market may be near a low. This low in the market typically coincides with a spike in the VIX above 40 which we have yet to see but... 
In a note last year ‘What Happens When the Punch Bowl is Taken Away’ we used the common analogy in the economic world of central bank stimulus withdrawal being similar to a punch bowl being pulled away at a party. Since that note inflation has not only stuck around but accelerated way past our expectations, and evidently the Federal Reserve’s. Fast forward to now and the punch bowl has not only been pulled away but cleaning up is beginning at the party. Yesterday's much anticipated Federal Reserve committee meeting resulted in a policy rate hike of 75 bps, the biggest since 1994, and a stark contrast to the ultra-easy monetary policy coming out of covid. What's more is that the central bank is going from quantitative easing (pushing cash into the economy) to quantitative tightening (pulling cash out of the economy) in a short period of time. The Fed is... 
Beginning in late 2020 when writing our 2021 Economic Outlook we tried to deduce what the longer term scars might be from the covid pandemic after the waves of the virus are behind us. In our mind the most likely shift would be a reordering of the global supply chain to onshoring which we coined “The Era of De-Globalization”. This was perhaps lazy because this trend had actually been in place before covid as world trade peaked in 2009 and has been slowly reversing since. Nevertheless, at our Pike Run Event in December 2021 we again highlighted de-globalization as a tail risk to the economy in the form of a geopolitical affair. Admittedly the event we had on our mind was a Chinese incursion in Taiwan, but instead we got the abrupt Russian invasion of Ukraine in February.
Why this is disruptive is because the post-WW2 world was shaped... 
With the dramatic compression in valuation multiples this year we can now start to plot the current positioning of the market versus historical averages to gauge whether or not equities are attractive. On the graph above I have the forward 12 month P/E ratio of the S&P500 which currently stands at 17.6x and represents a level of 4,029. Overlapped on the chart I have 5, 10, and 15 year average multiples along with corresponding S&P 500 prices.
The current fwd P/E ratio of 17.6x is below the five-year average of 18.6x which gives a fair value of 4,231.5 using consensus forward EPS estimates of $227.5 for 2022. However, the market is still above the 10 and 15 year average multiples of 16.9x and 15.6x, respectively.These longer term multiples give S&P 500 fair value levels of 3,844 and 3,549 which correspondingly represent -4.59% and -11.91% drawdowns from today’s prices. As... 
Last fall we advised you that we were expecting an adjustment period for the capital markets [see blog here]. An adjustment to slowing economic growth, decelerating corporate earnings, higher inflation, and new Federal Reserve policy measures. Market valuation models are adjusting to these new circumstances. Ultra-low interest rates, massive fiscal and monetary initiatives elevated valuations beyond actual long-term earnings potential. Under the Fed’s efforts to contain inflation, valuations will now align to actual long term economic growth expectations which remain attractive. The economy is still expanding at historical trend line GDP growth of 3% and corporate earnings are more representative of expectations at 8%.
Now capital valuations must adjust to this new level of growth. Irrational liquidity provided by the Fed’s actions to rescue the post-pandemic recovery distorted valuations. As the Fed withdraws this excess liquidity by raising rates and reducing their balance sheet, economic demand will slow, and inflation... 
The situation with Russia/Ukraine remains fluid but we wanted to follow up our note on the ‘Turmoil on the Eastern Front’ from the beginning of the invasion. In that note we showed the historical playbook for geopolitical events, and looking back the market has behaved remarkably in line with those precedents up to this point. But we don't think the situation is completely behind us and want to reiterate that historically what happens after the initial recovery mostly depends on what conditions were like going into the crisis. In today's case that was inflation and changing central bank policy. We continue to think that will be the dominant theme as we go into the second half of 2022.
For more on the geopolitical situation please see Schwab’s latest market perspective below:
Schwab Market Perspective: Fog of War
https://www.schwab.com/resource-center/insights/content/market-perspective?cid=26953355|1174031|163776318|323400024
Commentary Disclosures: Covington Investment Advisors, Inc. prepared this material for informational... 
Geopolitical tensions continue to boil with the Russian invasion of Ukraine shocking an already inflationary global commodities market. Rumors of progression in ceasefire negotiations have boosted markets today but regardless, the economic fallout from the sweeping sanctions will likely last for some time. In our last note we outlined from a high level what the market behavior was during past episodes of similar geopolitical turmoil. We also reiterated why having operating cash set aside and being able to ride out volatility is essential to long term investing. But just as important is understanding what you own and making sure the assets are fundamentally strong.
The current geopolitical driven volatility underscores why we build our portfolios the way we do, sticking to our espoused investment philosophy of owning domestic, large-capitalized, ‘proven enterprises’ which have strong balance sheets. Not only has this niche rewarded shareholders with strong growth in recent cycles,... 
After 18 months of very little volatility a cascading series of events including the escalation between Russia and Ukraine have reverberated throughout markets causing our first 10% percent drawdown in large cap stocks since March 2020. I'm not going to try to predict the path of military actions in Europe but I can try to put into perspective what the economic impact might be from what's taking place in the region.
Geopolitical events by their nature are difficult to predict and tend to be short lived, although there are certainly exceptions.Outside of the commodities sector, Russia is a marginal player in the world economy accounting for only 1.3% of global GDP, and Ukraine makes up an even smaller portion. US exposure to Russia in terms of total trade is a very low 0.1% of GDP. The EU on the other hand sources roughly 1.5% of their total goods trade with... 
We believe we are in a transitory environment that will be increasingly challenging for bonds. With potential rate hikes in the future, it is important to have realistic expectations about bond returns as they are likely to be low in 2022. The image below illustrates the inverse relationship between bond prices and bond yields. Although the bond market is less volatile than the stock market, bonds also fluctuate in terms of price. You can see we have been in a 36-year bull bond market that has brought yields to record lows.
Although bonds typically provide portfolios with a safe haven from market volatility due to their low correlation to stocks, they don’t provide much protection against inflation. In fact, inflation is a major driver of volatility within the bond markets. With the Federal Reserve likely to raise interest rates multiple times in 2022 to combat inflation, investors have been concerned... 
Market and Economic Observations
December 10, 2021
Covington recently presented their observations on the market and economy at our annual shooting event held at Pike Run Country Club. Please find our presentation commentary below.
Introduction:
Good evening on behalf of my colleagues at Covington and my wife Kim. Thank you for joining us here tonight. I trust you have enjoyed being here at Pike Run.
A few of us shot sporting clays earlier today and a few of us shot better than others. 1St place, 2nd place, and 3rd place trophies were awarded to the top shooters.
Alma Johnson has decided to put her feet up after working for 60 years. I can’t imagine why she would want to retire now. Eighteen of those years were with Covington. It was just Alma and I when we started Covington in 2003. My dream of owning my own firm would not have... 
Markets underwent a volatile session today on news that the WHO is monitoring a new covid variant detected in small numbers in South Africa called B.1.1.529. The new variant is purported to contain multiple mutations with increased antibody resistance and rattled markets on a thinly traded day with several of the cyclical & travel related parts of the market getting hit hardest.The development of rising covid cases is a risk to markets but the trend of the world economy recovering from covid is still intact even as new variants create speed bumps in the process. The Delta variant created a hiccup in the recovery earlier in the year but the economic risk ended up being minimal. With winter approaching I would guess that the world will continue its rolling two month cycles of rising and falling covid cases with a combination of antivirals and boosters eventually smoothing infections similar to... 
Last week, we had the pleasure of hosting our first board of directors meeting for the Laurel Highlands Workforce & Opportunity Center in their new building located at 310 Donohoe Road, Greensburg PA. My wife and I founded the non-profit organization to remove the barriers of structural poverty for individuals who are under and/or unemployed, or are in transition of employment. Our vision for the center is to serve as a hub of human services that will provide for the betterment of the human experience.
It is our hope to simultaneously address the labor needs of the businesses located in Westmoreland County. Our efforts will be collaborative, multi-faceted, and modeled after Bill Strickland’s Manchester Bidwell Center. To accomplish our mission we plan to leverage the talent and skills of our Board of Directors. Anne Kraybill, Executive Director of the Westmoreland Art Museum will be developing our arts program along with... 
Covid has disrupted supply chains in two major ways: surging demand for imported consumer goods in the west, and a decline in workers required to maintain and operate these supply chains. Over the last twenty years supply chains have relentlessly been pushed towards efficiency with the adoption of Just-In-Time(JIT) inventory management in addition to the integration of global component sources. This Evolution has dramatically increased efficiency but has come at the cost of fragility. Covid constantly flipping the on/off switch on these supply chains has exposed this weakness. Shipping is the nexus of the issue. It usually takes 40 days to transport a container from a factory in China to a store in the US. At the moment it takes 73 days meaning goods ordered today may not arrive by the Holidays. Consequently, price of shipping has jumped. Both the Shanghai Shipping Exchange Containerized Freight and the Baltic Exchange... 
A few weeks ago we sent out a letter followed by a note conveying that after an exceptionally strong 18 month stretch of performance in markets with little-to-no volatility we would be transitioning into a period where market price action would normalize and volatility would likely rise. However, we still see long term equity market performance remaining strong supported by the fundamental backdrop.
That volatility came to fruition as several cascading news headlines have come down in the last week beginning when Evergrande, a large property developer in China, announced that it would likely not be able to pay its financial obligations. Evergrande is widely reported to have around $300bn of liabilities, own 1300 real estate projects in 280 cities and is associated with 3.8million jobs per year. So it’s reach is wide and because of this the fear was that it would have a bleeding effect throughout markets. Because... 
Incredible to think about, but the S&P 500 has advanced over 18% year-to-date and roughly 30% over the last 12 months. From the post-pandemic low last March equities have rallied over 100%. I made the graphic above before the recent 2% sell-off, but nevertheless equities have bounced back much faster than any post-recession period in history. What’s more is that this rebound has been absent of virtually any volatility. The S&P 500 has notched over 45 all-time high closings so far in 2021 while going over 10 months without a 5% pullback.
Recently our President sent out a letter conveying our premonition that markets would be undergoing a “transition period” whereas they would adjust to peak growth rates & liquidity, and also to reinforce why our investment strategy and philosophy is well positioned to move into this new phase (His letter is available here). When stepping back and taking into account... 
In anticipation of heightened volatility, I wanted to touch base with you as I see the current economy and markets at an inflection point. Year to date global equities have continued their strong momentum from last year with many indices posting double digit gains so far in 2021. The S&P 500, the market index comprising of the largest US companies, has notched over 40 closing all-time highs in 2021 with one of the strongest recoveries coming out of a recession on record.
If you recall, early in this market rally from the March 2020 lows the central narrative surrounding the economy was that markets were disconnected from fundamentals and thus ripe for a “double-dip” sell-off. This did not end up being the case as economic data on almost every front has come in stronger than expected and 2021 corporate earnings are projected to come in 21% higher than 2019 levels.... 
Earlier this year stories started to break that the Biden Administration was planning to raise the capital gains tax rate on wealthy Americans to 39.6% and recently whispers are floating around that the new rate could be even higher. Rumors of rising taxes usually invokes an anxious response by markets especially after a strong run like we have had. But the effect to the overall market from the capital gains hike may not be as significant as people think as it will only affect a minority portion of today’s equity accounts. In 1965 80% of US corporate equity was owned in taxable accounts. Today only roughly 30% is owned in taxable vehicles with much of the US holdings shifting to tax deferred accounts which are not affected by capital gains taxes. Foreign investment has also eaten up a large share of domestic equity holdings as the US runs ever... 
Inflation continues to be the hot topic in financial markets and is shaping up to be a defining macro story of the next decade. One aspect of the inflation debate which we did not touch on in our Inflation Fixation note is what about the monetary and fiscal stimulus? US Government spending in response to fighting Covid was the highest since World War 2 at over 30% of GDP with more spending in the pipeline. The spending is high in a vacuum but it is also coordinated throughout the World by both Central Banks and Governments. What’s more is we have a new Presidential regime which has made spending a pillar of its social policy signaling that austerity is probably not in the cards.
Could this combination of a hesitant Fed, aggressive stimulus injection, and ambitious future spending goals signal that the Fed will be behind the ball on curbing... 
Maybe some would say a good problem to have when considering where things were a year ago, but a primary risk to markets now is that the economy is overheating. We have made note of the inflation readings that have jumped meaningfully over the past several months, but why could this signal a risk for markets? Because it raises the possibility of Central Banks pulling back some of the stimulus which has helped support markets since last March. In response to the inflation jump Fed officials have been adamant about portraying the price spikes as transitory. But at the same time have begun to discuss the possible tapering of asset purchases leading many investors to bring forward their expectations for the first rate hike. In our view this will be the key source of volatility for markets in the second half of the year, particularly in August during the... 
If you have tried to buy something like a car or washing machine lately you probably know firsthand about the challenges of lean inventories & price pressures and are not surprised by the surge in inflation readings that have filled media headlines. Inflation is not only salient because it affects businesses/consumers but also because of its effect on interest rates, and therefore asset prices. But inflation is also an economic phenomenon in the sense that it is maybe the most discussed financial topic but also the least understood by forecasters when applied to real world developed economies. In our January 2021 Economic Outlook we highlighted runaway inflation as a key risk for the economy in the New Year, but also why the long-term picture is not as clear.
The view by the Federal Reserve and one which we largely share is that inflation will be transitory driven by supply chain... 
The economic momentum continued its recovery from the pandemic induced lockdowns in the 1st quarter 2021 with real GDP expanding at an annual rate of 6.4% in the first quarter of 2021. Massive spending measures by the government, unprecedented Fed policy measures, overall strong employment recovery and greater vaccination rates drove strong economic activity, delivering strong S&P 500 operating earnings largely above expectations up 34.1% year over year trending at $187.43 from $139.00 at year end. Inflation reached 2.6% in the first quarter due to reopening demand along with material and product shortages. Consumer spending expanded 10.7% at an annual rate in the first quarter supported by strong household income as federal stimulus checks continue.
The rotation into cyclical – value stocks which started last September continued in the first quarter which helped thrust the S&P 500 to new highs despite consolidation in the mega caps. Equity markets are priced... 
One principle of investing that we constantly reiterate because we believe it is so foundational is the concept of keeping a long term mindset in the capital markets. This is especially difficult in today's world that is rife with instant transmission of information and fast money strategies revolving around SPACs, Crypto, and reddit “meme” stocks. In fact it almost feels inhuman to be indifferent to the constant hurling of strong opinions easily transmitted through social media and instead see the big picture. But history has proven time and time again that the most effective strategy to growing wealth is to purchase shares of strong businesses at reasonable prices and then simply let time and compound interest do its work. Most American fortunes were earned via ownership of strong businesses for many years.
Not only does time allow stocks to execute their compounding nature but it also lowers the risk... 
Covington Investment Advisors, Inc. is pleased to announce that Cindy Jones has earned the Chartered Financial Analyst (CFA) designation. This designation requires successfully completing a series of three exams covering a wide range of topics related to financial analysis. In addition to passing the exams, other requirements include having relevant work experience, submitting professional references, and adhering to the Code of Ethics and Standards of Professional Conduct of the CFA Institute. Additionally, she holds the Series 65: Uniform Investment Advisor Law license.
Cindy joined Covington in 2012 as Assistant Portfolio Manager and currently holds the positions of Portfolio Manager and Chief Compliance Officer. She earned a Bachelor of Science degree in Applied Mathematics with additional studies in Computer Science and Statistics from the University of Pittsburgh.
As Portfolio Manager, Cindy oversees the firm’s investment committee’s processes for determining the buys, sells and holds of all the securities held by the... 
Market drawdowns and Bear Markets are a reality when it comes to investing in the equity markets. Part of the reason equity holders receive a higher long-term return over ‘safer’ investments such as bonds is that they take on additional risk and the likelihood that their investment will be negative over stretches of time. Of course no investor wants to experience their investment losing money but this year illustrates perfectly why sticking to a plan and staying invested while owning proven enterprises with strong balance sheets is the prudent approach. This fact of investing is nothing new but the rise of social media and the competitiveness for media headlines since 2010 have given way to a flood of negative market calls which naturally appeals to human negativity bias and our survivorship instincts. This appeal strategy has worked in part because the flood of calls followed two of the deepest bear... 
Early last week Pfizer announced data on the clinical trial of their COVID-19 Vaccine candidate which was followed up this week by results from Moderna. It’s easy to see why there is so much excitement over the news as the reported 90 and 94.5 percent effectiveness would put the vaccine on par with the Chickenpox, Mumps, Polio, and Whooping Cough vaccine, and much further ahead than our typical flu vaccine. The logistics of distributing the vaccine will be difficult and likely take months but progress in the development aspect is hopeful.
The news comes at the same time that daily cases and hospitalizations are reaching all-time highs. We now have more clarity on what the end destination looks like (vaccine rollout and distribution in second half of 2021) but perhaps less clarity on the path as the spike in cases will weigh on consumer spending in the near-term. At the... 
Although a presidential winner may not be determined until potentially the end of the week, one takeaway from election night is that the Republicans will likely keep control of the senate, meaning congress will be divided. This could be partially responsible for the large rally in equities following last night’s initial election results. Historically, equity markets have performed well in this environment with stocks being higher in the last ten years with a split congress. Although this election is far from over with a recount/legal challenge likely, a split congress actually adds some clarity as any significant legislative bill for either party will be difficult to pass. This includes a repeal of the 2017 Tax Cuts & Jobs Act which we wrote about in June and can be found here.
Commentary Disclosures: Covington Investment Advisors, Inc. prepared this material for informational purposes only and is not an... 
Is cash still king? In the world of global payments, not so much anymore. Cash usage is at an all-time low giving way to the transformation to card/digital. According to the latest Nilson report, cash made up less than 20% of US payment volume in 2019 (by total reportable $ value), and is forecasted to fall to less than 15% by 2023. The demise of cash is one of the trends that has been in place for decades but has been accelerated by circumstances arising from COVID-19. The ability for card payments to now be administered in a contactless manner via ‘tap-to-pay’ has been a useful tool for consumers that want to avoid contact at the checkout aisle. Pair this with most consumer spending shifting to Ecommerce channels during quarantine and the demise of cash has been expedited.
The scale of the large pure-play payment networks, Visa and Mastercard, is... 
A historical blend of events in 2020 including the COVID-19 pandemic, shift to a work-from-home economy, and record low interest rates, created the perfect storm for large-cap US tech to structurally outperform the broader market. This outperformance has reversed in recent days with the S&P 500 falling 2.27% and the tech-heavy NASDAQ falling 3.25% last week. This sell-off might have been unavoidable given how stretched some of the valuations for the headline growth names have become relative to their historical ranges and profits began to be taken. It is difficult to see how operationally these tech companies will not continue to benefit as they have for so long, but in the near term a “catch up” rotation could be taking place in the market as the reopening of the economy accelerates, and those industries that have been decimated revert to the mean. In our previous blog post "Air Traffic Data... 
Although our investment holdings at Covington consist mainly of large multinational corporations, small businesses make up the backbone of the US economy. The most effective policies for defeating the virus are also the worst for small businesses (absent a vaccine). The mandatory shutdowns created a record number of “temporarily unemployed” workers who were laid off but expected to return to work quickly. To help small businesses deal with this the government developed the PPP program to maintain their employment levels. This program was certainly not without its flaws, but all things considered, helped cushion the blow at least partially. The $600 additional unemployment benefits was also established. This did help buoy consumer spending but not in a proportional way to benefit small businesses as in lockdown most spending had to go through online shops. The $600/week supplement also created the problem of trying to rehire workers quickly as some low... 
Cases continue to rise with the US registering its new daily record of over 70,000 cases on Friday. Deaths have also increased, but not with the same magnitude as case growth. The disconnect in deaths and cases is partially attributed to the continued ramp in daily testing. The US is now testing over 700,000 citizens a day. One of the attached charts shows the positivity rate (daily new positive tests divided by daily total tests) overlapping daily cases to show the relationship. The positivity rate gives a clearer picture of what the true infection growth is.
Lawmakers look at this positivity rate in their respective states/counties as one of the key metrics to decide whether to relax, or tighten social distancing measures. If the infection rate is not tamed, it could mean that those industries most affected by shutdowns (Leisure and hospitality) will not be able to open.
... 
The European Commission recently released their ‘Summer Forecast’ for the EU/Euro Area economy where they downgraded their own projection from earlier in the year. The original -7.4% GDP contraction expected for the EU economy has been reassessed to -8.3%. Even despite the swift and comprehensive policy response from the European Central Bank and EU governments, the lack of resilient technology giants like the US possesses, along with less diversified economies has hurt the European bloc proportionally worse. Also, social distancing measures were stricter in most EU countries meaning better virus control but worse economic damage to this point. Italy has shouldered the brunt of damage with GDP projected to fall 11.2% in 2020, while Sweden and Denmark are so far the least scathed projecting a < 5.50% decline.
7/10/2020
Commentary Disclosures: Covington Investment Advisors, Inc. prepared this material for informational purposes only and is not an offer... 
“This time it’s different” is a dangerous phase in the economics world. Recessions don’t typically result in personal income increasing, but this one has thanks to coordinated global fiscal/monetary support. However, soon the US faces a “benefits cliff” with the additional $600 per week of unemployment benefits set to end on July 31st and normal UI benefits for those who were part of the initial layoffs in March ending in September. Congress is expected to put together some kind of extension for these stimulus efforts but the two parties remain far apart on what exactly the next phase would look like. This stimulus is important because it has essentially buoyed consumer spending during the shutdowns. All income classes have seen their spending bounce significantly from the late March lows. But as we keep mentioning, stimulus efforts can only be temporary. Economies need to continue reopening and true economic activity needs... 
Certain industries/pockets of the economy are seeing a quicker recovery than others. The TSA keeps track of the amount of passengers originating trips from US airports. On a normal day in March that number is over 2 million, at the height of government shutdowns this year it was less than 90,000. Recently air traffic has recovered with daily passengers in the last week eclipsing 700,000, but this is still a long ways off from a “V-Shaped” recovery in air travel. Keep in mind airlines have high fixed costs, large amounts of overhead, and razor thin margins. Most airlines are simply not solvent if air travel is less than half normal traffic for a prolonged period of time.
We think this polarization in recoveries from one industry to another will continue and even worsen the longer the virus lingers in the economy. Some industries are seeing enormous demand tailwinds (Cloud, Ecommerce,... 
Cases fell slightly from their peak over the weekend but still remain high, particularly in the new “hot spot” states (Arizona, Florida, Texas). Many of these states have now imposed stricter social distancing guidelines after remaining relatively open during the pandemic. Even after 10+ days deaths have still not followed the increase in case load. The lag time window is not an exact number of days but this is still encouraging.
Commentary Disclosures: Covington Investment Advisors, Inc. prepared this material for informational purposes only and is not an offer or solicitation to buy or sell. The information provided is for general guidance and is not a personal recommendation for any particular investor or client and does not take into account the financial, investment or other objectives or needs of a particular investor or client. Clients and investors should consider other factors in making their investment decision while taking into account the current market environment.... 
US households have weathered the COVID crisis relatively well up to this point but there are two deadlines coming up for US consumers that could prove to stall out the economic recovery. On July 31st the extra $600 unemployment benefit per week as part of the CARES act will run out. Unemployment benefits normally last 26 weeks meaning workers who lost their job in March as part of the initial government shutdowns will exhaust all of their unemployment insurance benefits in September. Initial Jobless claims have fallen sharply from their peak but returning citizens to work may take longer than most are currently expecting. If more fiscal support is not extended to households by keeping the expanded unemployment benefits or implementing a fresh round of stimulus the risks will begin to rise that the US will experience a widespread solvency crisis in the household sector.
Commentary Disclosures: Covington Investment... 
Although the nationwide COVID-19 infection rate has tapered off from its peak in April, different regions are at different points in their cycle. Coastal population centers in the Northeast look to be for the most part past their peak, while states in the West and Southern regions have seen their cases tick up recently. A second wave of cases is to be expected as societal activity continues to resume and widespread testing is being implemented. As we mentioned in previous notes, reopening will be a process. The graphic below, sourced from visualcapitalist.com, shows US states sorted by their COVID-19 peak dates. Also included is our US COVID-19 slides from our June Chart Book showing US & global trends. We will continue to monitor these developments.
Commentary Disclosures: Covington Investment Advisors, Inc. prepared this material for informational purposes only and is not an offer or solicitation to buy or sell.... 
In previous notes we mentioned the possibility of a “Second Wave” of cases popping up as activity resumes and social distancing measures are relaxed. In the last week cases have begun to rise across the nation, particularly in states that until recently have not seen a huge case load from the virus. The increase itself was to be expected but the severity of new case growth is still alarming. On June 26th the United States reported a new record in daily COVID-19 cases, most of which came from southern and western states. The encouraging sign from recent data is that so far daily deaths have not kept up with the pace of new cases. This implies that treatments are improving dramatically and testing remains robust. Keep in mind new deaths tend to lag cases so we remain hopeful that the fatality rate continues to fall.
Also encouraging is that households... 
As you may recall, in early 2017 we started the initiative to combat the Opioid Epidemic in our area and were seeking a Federal High Intensity Drug Trafficking Area (HIDTA) Designation for Westmoreland County. When we started this initiative, the overdose rate of deaths in our county was growing at 46% per year. The complete costs associated with these deaths is immeasurable in terms of the families affected and the lost contributions these individuals may have had in our communities.
Although our original efforts were thwarted due to political reasons, I am pleased to say that Westmoreland County has finally been designated a HIDTA by the White House’s Office of National Drug Control Policy. Westmoreland joins three other Southwestern PA counties (Allegheny, Beaver, and Washington) in receiving dedicated federal resources to coordinate federal, state, and local government to fight drug trafficking and abuse.
The HIDTA designation will allow Westmoreland County... 
Now that domestic COVID infection rates are falling, the country is beginning to reopen, and market volatility has subsided, it’s time to look ahead at what will most likely fill the media headlines in the second half of 2020: The Presidential election.
The stock market is surprisingly President-agnostic over the long term. Whether it is a Democrat or Republican, the President does not have too much direct effect on the stock market and companies learn to adapt quickly to the current regime. But this does not mean that the President does not have any influence over market factors. Presumptive Democratic nominee Joe Biden is much more centric than former liberal contenders Bernie Sanders and Elizabeth Warren, but he still shares some of the same policy directives such as the push for a return to the more progressive tax policies of the Obama administration. Biden has proposed partially reversing the Tax... 
When a pivotal economic event takes place like we are experiencing with the coronavirus pandemic there are certain trends that begin to either arise or quickly accelerate. We think the latter is currently happening with Ecommerce. It is no secret that for many years online shopping has been taking market share from brick and mortar retail. But never before have we seen a scenario where many brick and mortar retails were forced to close shop and deemed “non-essential”, while the large online market places became the essential way for consumers to get the goods they needed. Some could argue that Amazon & Walmart, the two largest Ecommerce retailers, became a staple of national security for their distribution capabilities as citizens are quarantined in their homes.
Much of this gained business is due to many small retailers simply being forced to close for several months, but we think that Ecommerce retailers... 
Federal Reserve Action and Market Volatility
In late March the Federal Reserve established the SMCCF (Secondary Market Corporate Credit Facility) to support credit to employers and provide liquidity for financial markets.
These new credit facilities gave the Federal Reserve the ability to purchase a larger array of financial products than traditional quantitative easing techniques previously allowed. This included the ability to purchase large amounts of investment grade corporate bonds through SPVs (Special Purpose Vehicles).
As shown in the chart above, this action by the central bank had a profound impact on the financial markets. In particular, the creation of these credit facilities caused a peak in volatility in both equity and credit markets.
The long-term impacts of the unprecedented monetary actions will remain to be foreseen. But for now, the Federal Reserve has been able to keep financial markets operating relatively calmly while the world navigates the Coronavirus pandemic.
... 