MARKET BRIEFS: Q2 RECAP AND Q3 OUTLOOK

What’s Up with the Stock Market?   |   Market Review Q2 2020  |   Finding a path forward.

Stock price increases were spread more broadly in the second quarter than the first with mid-cap and small-cap stocks enjoying higher returns than large-cap stocks. Similarly, the second quarter saw strong returns across every sector of the market, but with the exception of Technology and Consumer Discretionary (which is dominated by Amazon), all sectors still had negative year-to-date returns. Read more of Jerry’s perspectives on Q2 2020, and what investors should be thinking about for the future.

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• In the same way equity markets tumbled quickly in the first quarter, we saw a rapid rebound. US equity markets rallied strongly with a return of 20.5% for the quarter. Despite being the best quarter since 1998 and one of the top 10 quarters in history, year-to-date returns were still in negative territory at -3.1%.¹
• Concentration was the name of the game. Performance of the US equity markets has been concentrated in a few stocks over the past few years – Facebook, Amazon, Netflix, Apple, Microsoft, Alphabet (Google). The performance of these six stocks contributed 5.4% to the S&P 500 return while the remaining 494 stocks contributed -8.4% to the S&P 500 return year to date.²
• A trio of sectors saw returns over 30% for the quarter. Consumer discretionary was the leader of the pack at 32.5% as consumer spending picked up in the second quarter followed by energy and technology, both seeing returns of 30.5% for the quarter. Year-to-date only two sectors saw positive returns – technology and consumer discretionary – while energy was the worst performing sector, down 35.3% year to date due to the -50.5% return seen in the first quarter.³

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¹ Source: Morningstar, S&P Dow Jones Indices
² Source: FactSet
³ Source: Morningstar, S&P Dow Jones Indices

The story

The first quarter of 2020 was one for the record books. As it turns out, so was the second quarter. The S&P 500 soared over 20% during the quarter (almost 40% since the March 23 low) despite the historic stress felt in the real economy. Skeptics of the rally pointed to the massive intervention by the Federal Reserve and the US Treasury, arguing that the equity market was being artificially propped up and economic weakness ignored.

So, economists (including the Federal Reserve staff) were caught flat-footed when the May employment report showed a massive 2.5 million increase in jobs. Expectations were for a decline of over 8 million. The June report released today showed an additional 4.8 million jobs added, well above expectations, on top of an upward revision of 2.7 million to the May gains.

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