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Monday, July 20, 2020
MEDIA MONDAY / INVESTMENT MARKETS 2Q REVIEW AND 3Q 2020 STOCK MARKET OUTLOOK
Editor’s Note: As Edward Jones is the financial advisor of this daily online publication, permission is granted to pillartopost.org [p2p] to republish certain data to our readership. In the opinion of P2P the second quarter review is brilliant.
GUEST BLOG / By Edward Jones Investment Policy Committee (1.)
Click on the link below to read the committee's (1.) review of the second quarter of 2020, as well as their outlook for the economy, equities, fixed income and international investing. There is also a special section discussing the coronavirus pandemic's short- and long-term impacts.
QUARTERLY MARKET OUTLOOK.
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Investment markets rebounded in Q2, with stocks outpacing bonds amid a sharp rally following the pandemic-driven sell-off. Sizable policy responses prompted markets to shift their sights toward the reopening of the economy and the rebound in consumer and business spending.
While a sustained expansion will take shape, in our view, equities will likely proceed in a choppier fashion than experienced the past few months.
Strongest quarter in more than two decades – U.S. large-cap equities gained 20% from April through June, the best quarter since 1998 and the fourth best in the past 70 years, putting the market 40% above the March lows at the halfway mark of 2020. Looking back at quarters with a gain of more ›than 15%, the average return in the next quarter was 7%.* While there is no guarantee that the worst is behind us or that history will repeat itself, since 1950, every instance in which the stock market rose more than 30% from a bear market low turned out to be the beginning of a bull market.
Policy and progress spark a turnaround – A historic spike in unemployment and an economic shutdown prompted unprecedented support from the Federal Reserve and the federal government, including the largest fiscal rescue program since the 1930s. These actions, in combination with incremental progress related to the health care crisis, shifted the market’s sights to the reopening of the economy and a rebound in corporate profits.
Higher-volatility, economically sensitive areas led the way – All 12 asset
classes in our diversified portfolio framework logged positive returns in
Q2, with the more cyclical investments leading the way. This showed up in the outperformance of small-cap equities as well as leadership from the technology and consumer discretionary sectors. Bonds posted modest gains as longer-term interest rates remained near historic lows.
Because the downturn was triggered by a biological crisis, we think the path of the coronavirus pandemic will shape the path of the economic recovery.
An increase in infection rates could slow, though not derail, the economic rebound that we think will start later this year and continue into 2021.
The path of COVID-19 will shape the economic recovery – The U.S. reported 41,500 new coronavirus cases on June 30, topping the previously recorded daily high of 36,291 cases set on April 24.* New York and New Jersey have lowered their number of daily new cases, but Arizona and Texas have dialed back the reopening of their economies. As long as medical advances continue and new cases stay contained, we think it is unlikely the country will re-enact a national lockdown, but we expect the rebound to be constrained until there’s a vaccine for or effective treatment of the virus.
The path from recession to recovery starts with a sharp bounce, followed by a long haul – The severe decline in Q2 is likely the worst since the Great Depression. We expect a quicker-than-average start to the rebound in Q3, due to pent-up consumer demand. After this quick bounce, it will take much longer to return to pre-pandemic levels of economic growth due to labor market weakness and businesses’ inability to run at full capacity. With 17.8 million workers unemployed, it may take years for the unemployment rate to return to the 50-year lows reached earlier this year. On the plus side, the consumer balance sheet remains solid, with debt levels low and savings rates
at record highs. Early data shows signs of life in retail sales, increasing at the highest monthly rate on record in May. We believe the strength of the economic rebound will be determined by consumers’ capacity to spend and confidence they can safely resume normal economic activities.
Second Quarter in Review
*Source: FactSet, S&P 500 Total Return Index,
Edward Jones calculations since 1970. The S&P
500 Total Return Index is unmanaged and is not
available for direct investment. Past performance of
the market is not a guarantee of what will happen
in the future.
Rebalancing and diversification do not ensure a
profit or protect against loss.
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