Shipwreck

A Rising Tide Has Not Lifted All Boats

August 31, 2020
Tom LimogesBy Tom Limoges
Asst. VP - Investments 

As we approach the holiday weekend, many will hit the roads and waterways to enjoy the last few days of summer. One of my family’s favorite summertime activities is relaxing in a boat with a fishing pole in hand; which I hope to do this weekend.

Boating often reminds me of one of my favorite quotes related to the stock market – “A rising tide lifts all boats.” The quote is generally used when talking about how a favorable stock market environment often benefits most companies. While the current stock market has now surpassed the February 19th record high, the quote did not apply this time as not all industries have fully participated in the recovery.

Chart: S&P 500 Performance in 2020
Source: Wall Street Journal

The chart above shows the performance of the S&P 500 in 2020.  The market first peaked on February 19th , and then sunk (like an anchor) by 34% a little over a month later. It has since fully recovered and is recently trading at a new all-time high. During this time period, several records were broken, including the quickest bear market decline in history followed by one of the fastest recoveries.

Which market sectors have recovered the best?

Diving into the numbers further, you can see that the recovery has not taken place in all sectors of the market. Only half of the sectors in the index are floating above the highs reached back in February, while others still have a ways to go.

Chart: S&P 500 Performance by Sector

Even within each sector, there have been winners and losers.  In the discretionary sector, big box, grocery and online retailers have benefited from changes in consumer behaviors; while in contrast, restaurants, movie theaters, and clothing retailers struggled as a whole.

Where do we go from here?

In 2020, growth oriented technology and online retail sectors have outperformed most other areas of the market. That may not be the case in the future. Earlier this month, we saw a small shift in leadership from those growth oriented companies to more value areas such as energy, financials, and industrial companies.  The chart below shows that shifts in performance between growth and value can diverge over short-term periods. Owning a well-diversified basket of stocks is the best way to take advantage of these movements.

Chart: Growth Stocks vs. Value Stocks

While individual circumstances and details may be different, we are all in this same boat. As we navigate the uncertain waters of this pandemic, we have to find opportunities in the obstacles. We hope that you are able to enjoy the upcoming holiday weekend and take some time to relax, and maybe even enjoy some time on the water. If you have any questions related to the markets or your investment accounts with Security National Bank, please reach out to your trusted wealth management team.

 

About the Author

Tom Limoges

Tom Limoges is an Assistant Vice President in Investments, developing investment strategies for Security National Bank's Wealth Management Division. He holds an M.B.A. from Wayne State (Neb.) College, and has been a member of the SNB Wealth Management team since 2002.