Market Comments: Q2 2020

August 9, 2020 · Written By J. Stephen Lee

Global financial markets in 2020 continue to be driven by events around COVID-19. From deep pessimism and fear in the first quarter, which saw the fastest 30% drop in U.S. stocks in history, sentiment shifted rapidly in the second quarter as economic and social “re-opening” took place and impacts receded. The 50-day advance from March market lows was likewise the largest positive jump in history. In many ways, if you blinked you missed it. The volatility continues, and it is clear that coronavirus impacts will continue to dominate for the foreseeable future.

  • After historic declines in the first quarter, equities rebounded significantly in the three months ending June 30. The S&P 500, measuring large U.S. stocks, gained 20.5% and the Russell 2000 (small U.S. companies) gained 25.4%, combining for a U.S. Stock market gain of 22.03%.
  • Foreign markets showed similar results with the MSCI World ex US Index (developed international) climbing 15.34% and the MSCI EM Index (emerging markets) gaining 18.08%. At this writing the gains have continued as cautious optimism grows around a vaccine release in the near future.


Left Chart: US Stock Market (Russell 3000 Index), International Developed Stocks (MSCI World ex USA Index [net div.]), Emerging Markets (MSCI Emerging Markets Index [net div.]), Global Real Estate (S&P Global REIT Index [net div.]), US Bond Market (Bloomberg Barclays US Aggregate Bond Index), and Global Bond Market ex US (Bloomberg Barclays Global Aggregate ex-USD Bond Index [hedged to USD]). Right chart: Indices used for hypothetical portfolios returns are the MSCI ACWI for equities and the BBgBarc US Agg Bond for fixed income. All data derived from Morningstar Office.

  • Yields on the U.S. 10-year treasury remained fairly static, ending the quarter at 0.66%. The broad U.S. bond market rose 2.90% for the quarter. Crude oil prices (WTI) almost doubled from previous disastrous quarter, closing at $39.27 as of June 30. The price of gold ended the quarter at $1,770, about 11% higher than the March 31 closing price.
  • The pandemic has created a global recession that officially started in the U.S. in February. In the U.S., Gross Domestic Product (GDP) declined in the first three months by 9.5% from the previous year – a dramatic drop. However, forward-looking indicators suggest that likely was the low point, as manufacturing indices and employment numbers (see below) point to significant improvement for the 2nd quarter.
  • Governments worldwide continue to respond to the economic impacts of shutting down large swaths of businesses. Central banks have massively expanded their balance sheets via purchases of government bonds and have also moved to buy corporate and municipal debt. Fiscal stimulus in the form of loans and relief payments has been largest since WWII.
  • In the U.S., the Federal Open Market Committee is holding their benchmark federal funds rate at 0.00 – 0.25%. This return to “zero-rate land” has resulted in strong bond returns, but, as in the years following the Great Financial Crisis of 2008, has created challenges for investors and retirees seeking safe and reliable income.
  • Unemployment in the U.S. jumped to an 80-year high of 14.7% in April but has since recovered, with May, June and July seeing large jumps in job creation and (at the end of July) a jobless rate recovery to 10.2%.
  • Inside the overall rebound in stocks there remain broad and historic disparities – the “growth” style continues to significantly outperform “value,” reaching record levels. In the U.S., large growth stocks beat value stocks 28.8% to 16.8%, a huge gap. Statistically, this bodes well for future expected returns of value and smaller company stocks, which historically outperform over long periods. We provide deeper insight into this topic in these recent materials: The Infatuation with Growth and Growth vs. Value – Is it a TKO?

Volatility and uncertainty have been a hallmark of the recent geopolitical and global economic environment. That seems unlikely to change. Yet in spite of the worries, high-quality investment portfolios remain a proven and prudent way to grow wealth in excess of inflation and to meet long-term goals. As always, please call us to address your questions, and make sure to apprise your advisor of any changes to your financial situation.