A resurgence of new coronavirus cases around the country has created uncertainty for the markets and investors. In March the major stock indices saw the fastest bear market (20% drop) in history, with the S&P 500 dropping 37% in only 22 days. And in April we saw the fastest recovery of the stock market in history. As of today, June 30th, the market indices vary greatly, with most still in negative territory and some down significantly.
Another historical marker came about as the performance gap between growth and value stocks is the widest in 43 years. The five largest companies in the S&P 500 (Apple, Microsoft, Amazon, Alphabet/Google, and Facebook) now account for 72% of the market’s year-to-date performance. So why the S&P 500 is down only 5.3% through June 30th, more broad indices like the Russell 3000 Value index are down over 15% YTD. The NYSE Composite, which measures the performance of all stocks listed on the New York Stock Exchange, is down 15.4% through June 30th.
Looking ahead, we expect ongoing volatility and likely some really negative days in the markets as second quarter numbers come in. In the first quarter GDP dropped 5% on an annualized basis and the Federal Reserve is projecting a second quarter GDP decline of over 50%, an astonishing number. If states can continue to reopen then 3rd and 4th quarter GDP numbers are expected to improve and be back in positive territory.
It’s always impossible to know how the markets will perform going forward and that is certainly true during these times. We think Dr Fauci is right when he says that it will depend on the virus. As 36 states still see increasing rates of infection, there is still a lot to do to get ahead of the virus. The average age of those testing positive for the virus appears to be falling as bars and beaches reopen and younger and healthier individuals have significantly less severe outcomes but are frequently asymptomatic carriers to other populations. It also appears that doctors and nurses have learned a lot about treating patients with the virus. This helps explain why cases have risen but deaths have not. As a result we highly doubt we're headed back to broad April-style restrictions. The virus will be with us, until it is not. Social distancing may slow the spread but can't stop it and people and businesses are adapting. Everyone is anxious to get back to normal although it’s widely expected that the recovery process is going to take years and the unemployment rate won’t return to below 4.0% until at least 2023.
So what now? During these times we are reminded of what we can and can’t control as investors. We can’t control the markets, inflation, politics & policies, global events, and if you get hurt or when you die. But there is a lot that we can control and we recommend that you focus on those things, such as how much you save & invest, your expenses, how you invest, when you retire, how you protect yourself and your family with insurance, and how you respond to events. We will continue to favor and recommend investing in the stocks and bonds of blue-chip dividend-paying companies that make and sell the products and services that Americans depend on every day. We believe that companies whose products support the everyday needs of Americans will continue to reward investors as they have for decades. We have seen time and again over the years that America’s greatest companies provide a rich return to investors that are patient. And during these very uncertain times that is our advice to you once again.
Please don’t hesitate to give us a call or send us an email with any questions.