2020 is a year for the record books!
After an abrupt end to the 2009-2020 bull market on February 9, 2020 stocks dropped 35% in one month on the fear of COVID-19. In this past quarter we saw a 20% rally in the S&P 500 index. We finished June up 41% off the March 23 low. Q3 starts off -8.6% from the market top of 3393.52, yet -3% YTD at 3100.29 on June 30, 2020.
The best market performers were found in the Russell 1000 Growth index; IWF +9.7% YTD. Some of the worst performance came in the Russell 1000 Value index, IWD -16.29% YTD. The broader ishares Russell 2000 index, IWM finished -12.99% YTD with IJR the small cap index -17.85% YTD.
The economy crashed on lockdowns. Unemployment soared to 40 million plus, as the COVID-19 virus visited our shores while going global.
Global stocks as measured by the IEFA index are -11.53% YTD.
Q2 earnings, which are now starting to flow, will surprise in both directions.
Needless to say, people have become confused while trying to regain their balance. Why do stocks rise when the economy goes down, the virus spreads, plus most news is dreadful?
As for spots to invest "safe money" we note that many dividend and municipal or mortgage funds have paltry or negative returns in 2020.
AGG, the ishares Core Aggregate Bond ETF, with 74%. U.S. Treasuries returned +6%. HYG, the high yield corporate bond ETF, closed June -5.36%. MUB is +1.3%.
The pressing question on most investors' minds: Where on earth do we go from here, do we set up for a summer of fun or more lockdowns and riots?”
We have a tale of two markets;
Economic numbers are starting to show improvement from levels of recession not seen in decades.
FactSet predicts SPX earnings will drop 22% this year and bounce back next year.
Lack of visibility causes wide market swings as measured by VIX, a CBOE volatility index. VIX began the year around 12, soared to 85 on March 18 and is now trading at 27. High numbers equal high volatility and dangerous market movements.
According to FactSet 54% of companies WILL NOT issue forward guidance for the coming quarters.
The market appears to be looking for a cure or a vaccine as the best-case scenario. As the economy opens there is both joy and disappointment.
School openings loom in the Fall. November elections are 5 months away. Another rescue package by the Government is expected by July 21.
Social unrest will likely continue up to and possibly beyond the Presidential election.
People appear unwilling to put up with longer lockdowns. Mask wearing is optional in most areas and controversial. Social distancing is declining. These trends have caused Covid-19 to spread more than many anticipated as summer begins. Heat in the air is not a cure.
Despite bleak economic numbers, the DJIA rose 18% this past quarter, the best gain since 1987. That index finished June -9.6%.
It is frankly impossible to predict the next turn of the virus or what the election will bring in November.
A case can be made for a slow recovery and increasing inflation in years to come. A "V" shaped recovery in the market is not necessarily a "V" in the economy.
Some things are positive as markets climb a proverbial "Wall of Worry":
My concerns for the market include:
Time will tell how events unfold.
If you need to chat about anything on your mind, please reach out. Invest for the long term, it’ll be here before you know it!
Have a safe summer.
We wish you a Happy 4th of July and God bless America!
Executive Director & Investment Committee Chairman