Market Recap – 3rd Quarter 2020

For equity markets, the third quarter was an extension of the first half of 2020.  Large growth stocks - led by mega-cap tech issues - continued their dominance. Other sectors lagged, led by the poor performance of financial shares, as the Federal Reserve articulated policy that looks to keep interest rates at zero through 2023. 

Total Returns

The broader economy did bounce back from the horrendous second quarter where GDP shrank by a record 31.4%! As the country reopened, the economy sharply rebounded - resulting in an estimated third-quarter growth of 30%.

Unfortunately, that still leaves the economy about 10% below prior levels, with a wide dispersion in outcomes for various industries. Consumer spending in areas such as restaurants, hospitality, and travel remains severely depressed, while housing, electronics, and durable goods are booming.

We expect that a combination of additional fiscal stimulus and progress on a vaccine/therapeutic will drive the economy to new highs in 2021. Absent either of these, the economy is likely to return to previous growth rates reaching new highs in GDP in late 2022.  

The cyclical recovery has begun, and the mix of economic activity will gradually return to what we knew as normal. The consumer is in good shape - as measured by the savings rate and resulting balance sheet liquidity. Businesses have been able to reliquefy and are poised to invest as demand returns. Pent up demand for the sectors of the economy that are still depressed is building, and consumers and businesses can spend when confidence returns.

The prospects for companies that serve these markets look as good prospectively as they have in years, while absolute and relative valuations are at rock bottom levels.

 

 

August 10, 2020 will go down in history as the first time a high yield, or junk bond, priced at under 3%. Ball Corporation, rated one notch below investment grade by the rating agencies, was able to issue 10-year bonds at a yield of 2.85%. This…
For equity markets, the third quarter was an extension of the first half of 2020.  Large growth stocks - led by mega-cap tech issues - continued their dominance. Other sectors lagged, led by the poor performance of financial shares, as the Federal…
As we begin to get a peek at what 2020 might have in store for investors, we continue to see some encouraging signs in the economic data.  Following a growth slowdown in the middle part of 2019 as the US-China trade war stifled businesses’…
There is an investing adage that says, “Don’t fight the Fed,” and has that adage ever proven true this cycle, but especially so in both 2018 and 2019. It’s been well documented that various rounds of so-called “Quantitative Easing” coming out of the…
On Wednesday, August 14th broad stock market indices experienced a roughly 3% drop across the board – the worst day of 2019. Stocks sold off immediately at the opening bell and continued to worsen throughout the day. The reason: a growing sense of…
Just nine to twelve short months ago, interest rates were steadily climbing off the mat toward 3% and the path forward was on cruise control.  The primary debate among informed market observers seemed to focus on whether 2019 would see three or four…