Market Commentary: Second Quarter July 7, 2020
Global markets, which were under significant pressure as COVID-19 spread across the globe, have made a strong recovery from their lows. Large companies represented by the S&P 500 Index gained 20.5% for the quarter, and -3.08% YTD. Small companies represented by the Russell 2000 increased 25.4% for the quarter, and -12.9% YTD. International stocks represented by the iShares MSCI EAFE Index increased 14.9% for the quarter, and -11.3% YTD. The Federal Reserve has continued to purchase bonds to increase stability in the bond market. The Barclays US Gov/Credit 1-5 Year Index was up 1.7% for the quarter, and 3.98% YTD.
March of 2020 now holds the record for the fastest bear market. A bear market is described as a negative decline in the S&P 500 Index of 20% or more. It only took 16 days for the S&P 500 Index to lose 20% of its value in March, and by March 23rd had lost approximately 34% of its value. Amazingly, by June 8th, the S&P 500 was still off of its high watermark, but it was positive YTD.
Unemployment numbers grew at an unprecedented rate from 4% to over 15% in just about one month’s time. Now, with many states opening the restrictions for businesses to operate, and unemployment numbers receding, most economists believe that the recession (where Gross Domestic Product declines for two quarters) period ended in June. There is still a lot of uncertainty about how COVID-19 will impact global and national health, as well as how those health concerns will translate to economic output. If companies are restricted from conducting business operations at a normal rate, then profits will not be as high, and stock prices will come down. If businesses are restricted from conducting operations at all, then a lot of businesses could fail.
The Federal Reserve has promised to continue to provide the liquidity and stimulus that the economy needs to continue on. There are also stimulus packages proposed by congress that could be implemented if more stimulus is required. We think that the stimulus that has been provided so far was necessary for the sustainability of a large number of businesses. At the same time, we wonder how all of this stimulus will affect the U.S. debt load, and the economic future.
The stock market acted very quickly to both the negative and positive news on this pandemic, resulting stimulus, and other factors. It came back as quickly as it declined. That is not always the case, but it reminds us that it is impossible to time the market, and the best strategy is to stay invested according to your goals.
Large company U.S. stocks have been the best performers now for a few years, but we do not think that will last forever. In the mid-late 1990’s, large U.S. companies had been the best performers for a while, only to decline much more than small and international companies in the “dot com” crash. We believe our diversified approach of large, small, and international companies will provide returns consistent with your goals and objectives. Thank you for your trust in Petersen Hastings. We will do our best to help make your goals reality.