Information as of June 30, 2020
The stock market has rebounded substantially over the second quarter, making up, at least in part, for the abysmal losses resulting from the coronavirus and the shutdown of large parts of the economy.
The quarter started out with stocks beginning to climb out of a deep hole: equities have continued climbing ever since! US stocks, as measured by the Russel 3000 index, posted a 22% gain for the quarter and are up 6.5% over the past 12 months. Rebounding from the sharp downturn in March, the S&P 500 index posted its best quarter since 1998.
International Developed stocks also have recovered somewhat, increasing 15% for the quarter but still down 5% over the past year, while Emerging Market stocks are up 18% for the quarter and 3% over the past year. With interest rates declining to historic lows, bond markets have done well. US bonds have increased almost 3% for the quarter and almost 9% over the past year.
Stocks still seem focused on the success of the pandemic containment efforts and how quickly the economy might recover. Southern States, in particular, have been experiencing a new surge in cases, leading to some backtracking on the easing of restrictions. Markets appear to be counting on the economy recovering quickly. However, as more economic data comes in, it now seems more realistic to expect that it will take a few years just for the economy to recover to the level achieved at the end of 2019 and several more years after that for the economy to realize it’s full potential, even assuming a vaccine is developed and deployed in 2021.
The Federal Reserve’s quick response to the pandemic by slashing interest rates and providing easy credit to banks and small businesses has provided a key support to the economy. Combined with the stimulus efforts of the federal government, a large safety net has been cast for businesses and consumers alike to ensure that the economy doesn’t deteriorate further. There is a discussion in Congress about passing a more narrow second stimulus bill by the time the enhanced unemployment benefits run out at the end of July.
Although many European countries have largely contained the coronavirus and have been able to lift many restrictions on daily activities, their economies nonetheless are struggling to recover to pre Covid-19 levels. The European Commission is projecting that the European-wide economy will contract by over 8% and only grow by 6% in 2021. This forecast assumes that there is no second wave of infections. Clearly all economies are at risk if infections spiral out of control in any given country.
We have heard from many you that although you are concerned about another market downturn, you have taken the longer view that your portfolios will take time to recover. We continue to rebalance client portfolios, particularly towards international stocks, which are relatively cheaper compared to US stocks. Many of you are also adjusting your living expenses to conserve your assets; made easier since travel and entertainment options are limited. We invite you to contact us to share your concerns regarding your investments.