Mid-year Market Recap: More Fireworks to Come?
July 6, 2020
By Ted Hanson
On July 4, 1776, the Continental Congress formally adopted the Declaration of Independence. As we know, this became a historic day and is celebrated as the birth of American independence. Our founding fathers had a vision of success and prosperity. They knew it would be far from easy, but over time and with change, Americans would become stronger and achieve unimaginable accomplishments.
As we celebrate Independence Day and look ahead to the second half of 2020, we realize the first half of this year has not been easy for anyone. The markets started at record highs with an exceptional 2019 in the books, unemployment near historic lows, and a strong economy. Then came the fireworks.
How Did We Get Here?
In an election year, investors expect increased volatility. However in 2020, they got more than they bargained for. This year has brought a global health pandemic, government shutdowns, an oil price war and civil protests that unsettled the markets. Investors experienced a historic crash in the first quarter as the S&P 500 fell 34%. This was the quickest descent into a bear market on record and unemployment rose to levels not seen since the Great Depression.
The markets came roaring back in the second quarter as the Federal Reserve stepped in with unprecedented monetary policy and Congress with a $2.4 trillion stimulus package. Global COVID-19 cases began to slow and economies around the world began to open. The S&P 500 has gained 39% since the market trough and is now down only 3% year-to-date through the end of June.
Where Are We Now?
While we remain far from the prosperity we enjoyed at the beginning of the year, American’s have experienced a series of positive economic data releases over the past few weeks. Pending home sales, consumer confidence, and manufacturing PMI all surprised to the upside, providing a boost of confidence to investors. As you can see in the chart below, the unemployment rate remains at a historically high level — but has dropped in consecutive months as states and businesses reopen.
While this bodes well for a V-shaped recovery, there are still risks that the economy could take longer to recover. The U.S. has experienced an uptick in the number of coronavirus cases, causing many states to pause or reverse their reopening plans. There is also concern over the high level of unemployment and the loss of the additional $600 per week in unemployment benefits, which are set to expire at the end of July.
Investors can expect market volatility to remain high in the second half of 2020 with the uncertainty surrounding the uptick in COVID-19 cases and the U.S. heading into election season. As we have learned in the first half of the year, anything can happen in the short term, but history and the markets favor those who demonstrate the consistency, discipline, and patience in the long term. Portfolios in our charge will continue to invest in the long-term expansion of the global economy. It has been a tough first half of the year, but like our founding fathers, we believe we will emerge a better and stronger nation.
Contact an advisor today if you would like to review your portfolio. Lastly, happy belated Independence Day!