Q2 Market Review
The first half of 2020 has concluded which means we have been living life with Covid-19 for the better part of a full quarter. After a dismal Q1, the second quarter bounced back ferociously with the Dow and S&P enjoying their best quarters since 1987 and 1988 respectively and the Nasdaq having its best quarter since 1999. However, the economy is struggling, with record unemployment claims and shuttered businesses. The belief in a V shaped recovery has been replaced with the likelihood that it will be U shaped, but where are we on that U, at the bottom or on one of the sides?
The US equity market rallied strongly from last quarter. The S&P 500 Index was up 20.54% for the quarter, with a year-to-date (YTD) return of -3.08%. But even those numbers don’t tell the entire story, certain sectors of the economy have performed very differently. Technology was up 30.5% during the quarter and is up 15% YTD, where Financials were up 12.2% during the quarter but are still down -23.6% YTD. We are seeing a bifurcation of the marketplace wherein certain types of businesses are thriving in “the Covid-19 Economy” and others are not.
Elsewhere in the US, we saw an even bigger rebound. The Russell Mid Cap index was up 24.61% during the quarter but is still down -9.13% YTD. The Russell 2000 (Small Cap) was up 25.42% during the quarter and is down -12.98% YTD. Both indices were impacted by the same phenomenon as their large cap brethren.
Outside the US, markets rebounded, but not to the extent of those in the US. The MSCI-EAFE Index was up 14.88% for the quarter but is still down -11.44% YTD. In Emerging Markets, the MSCI Emerging Markets Index was up 18.08%, but is still down -9.78% YTD.
Interest rates continued their downward move as the Federal Reserve has signaled that they intend to keep rates low for as long as needed. The Barclays US Aggregate Bond Index was up 2.90% for the quarter and is up 6.14% YTD.
Where does this leave us for the balance of 2020? What unexpected events will drive the markets? Cases of Covid-19 across the country are rising. States that re-opened early are now shuttering businesses yet again. How this will affect the economy, the market & the election is difficult to ascertain. Will the Federal Reserve continue to provide a floor for the equity markets with additional asset purchase programs?
Considering all the above, we will continue to maintain our overweight to US Stocks vs International Stocks. We will be shifting our US Stock allocations toward those sectors that are disrupting existing businesses and away from those that are being disrupted. We will remain benchmark neutral, with regard to our stocks vs bond allocation. Our bond allocation will continue to be focused on core bond positions, maintaining an average maturity that is approximately 80% of the benchmark and maintaining a high-quality credit bias.
We hope that all of you are healthy and safe. If you have any questions, please call or e-mail us.
Marin Wealth Advisors