Trisha shares her thoughts on the markets, either about specific events that are happening or the market in general. Please check back regularly for new content.
Quarter Three 2020 Update
“It is difficult to make predictions, especially about the future.” Old Danish Proverb
The investment markets continued their recovery throughout much of July and August before giving up some of their momentum and pulling back a bit in September. Despite the September declines, the broad US stock market, as well as its international and emerging market counterparts, posted another strong quarter of gains. Performance has very much diverged however, with a handful of large, mostly technology-oriented companies representing an oversize portion of the gains while some sectors like travel and energy continue to struggle.
In some senses the divergence in stock performance makes sense and can be quickly explained. Large US stocks that are in industries that facilitate the “stay at home” environment - helping people to work, shop, go to school and even socialize and be entertained from home - have thrived. That can be clearly seen by looking at the performance of the Russell 1000 Growth Index, which includes many of these companies. It has literally more than recouped all of the losses from earlier this year, and posted a solid double digit gain as of the end of the third quarter.
On the other hand, things like commercial real estate, airlines and energy companies have been more negatively impacted by Covid-19 and its impact on the economy. You can see this in the performance numbers as well, with the Russell 1000 Value Index, where many of these companies are located. That index is still negative for the year with a decline of over 10% through September.
As we move forward, we expect to see the markets continue to fluctuate and competing forces push and pull at investor outlooks. If medical advances continue to bring us therapeutic breakthroughs and get us closer to a widely available vaccine the hope for a return to normalcy could draw investors toward stocks, and particularly those whose price may be poised to rise if a more normal environment returns. On the other hand, if Covid-19 case counts really spike nationwide as we head into fall, and further containment measures are taken to try to control the spread, that could spook investors.
There are also elections coming up and I know many are curious about how they could impact the investment markets. Government policy decisions certainly do impact the economy and the markets have a decided interest in things like tax policy and stimulus spending. Regardless of who wins any election however economic activity continues and businesses adapt to the structure and rules that they are given. Historically people worry much more about how the markets will react to election outcomes than the markets actually do react. That being said, one thing that the investment markets dislike without question is uncertainty so a prolonged period without a clear outcome could certainly result in volatility, at least until a smooth and peaceful conclusion is assured.
Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties which are difficult to predict. Past performance is not indicative of future results. All indices are unmanaged and investors cannot invest directly into an index. Diversification does not ensure against market risk.