Coming into this year, it was our expectation there would be plenty of volatility given the market had reached record highs in 2019, an ongoing trade war with China, and the election looming over us in November. Well, there was plenty of volatility but not for any of the reasons listed above...enter Covid-19. It’s hard to believe only 4 months ago was the beginning of “social distancing, masks, quarantine, herd immunity and flatten the curve” becoming buzzwords and part of our daily lives. It seems as if the last 4 months represented years, not just 120 days.From an investing perspective, you saw a historic drop in the 1st quarter of the year and a historic rally in the 2nd quarter of 2020. The sector chart below illustrates 2nd quarter / 1-year / 3-year returns as of the end of June:
The Fed’s intervention - with unprecedented monetary force - created some stability in the markets, both equity and fixed income, and propelled the recovery. While the financial markets stabilized, unemployment ravaged the US economy and we saw a loss (albeit many temporary) of over 20 million jobs in April alone. Labor-intensive industries, such as restaurants and hospitality, were among the hardest hit.The current stock market rally is not wide spread among industries and to many investor’s surprise it’s very concentrated. Technology has buoyed the wider market as has the consumer discretionary sector (primarily the anomaly that is Amazon). As of July 8th, nearly all other sectors including Consumer Staples, Healthcare, Utilities, Financials and Energy are down, some significantly (15-40%). The shutdown of the economy has disproportionately impacted certain sectors but the question remains if that is for the short-run or long-term. The balance sheets of many companies that were affected by Covid-19 will allow them to weather the current storm, but there will be (and already has been) plenty of casualties.
So what will the 2nd half of the year bring? No one knows exactly, but further volatility is likely given the push and pull of the current economic re-opening related to Covid. Further, social unrest in the US and the upcoming presidential election cloud the future. In the best of times it is difficult to make an accurate prediction, in today’s environment it is almost impossible. The traditional advice of maintaining a diverse portfolio with proper asset allocation are keys to navigating these challenging times.
One of the winners of the pandemic so far...Zoom comes to mind. The growth and evolution of this video-conferencing platform will be interesting to watch over time as they compete with established players like Microsoft-Teams and Cisco-Webex. There is no doubt adoption of technology is occurring at a rapid pace but what will become a part of our daily lives in the future - or - something that we look back on as a distant memory is unknown.