Another Ride on the Roller Coaster?

At A Glance

  • Volatility from the first quarter bled into the second, though this time to the upside. Equity markets staged a strong rally in Q2 2020 with US markets up anywhere from 15%-25% and international markets slightly behind but still up double digits. The long-anticipated rotation from growth stocks into value showed some fits and starts in Q2, but growth stocks still ended Q2 ~25% ahead of value YTD.
  • Fixed Income markets rallied as well, especially the riskier credit markets that suffered heavily in Q1 2020.
  • The continued dissonance between the strength of the financial markets and the worsening COVID-19 virus confounds many.
  • Municipal bonds rebounded after a very tough March. With the help of central bank support volatility abated with a resumption in new issuance and slowing investor outflows.
  • After serving as a ballast in Q1, Treasuries took a back seat to more credit exposed areas of the market in the second quarter. Investment grade corporate bonds, for example, rebounded nearly 9% in Q2. Lower quality credits also rebounded with areas like bank loans, and high yield corporates helped by unfreezing liquidity. Treasury Inflation Protected Securities (“TIPS”) also performed, with market inflation expectations rising from less than 1% at the end of the quarter to 1.3% by quarter end.
  • Alternative investments put up reasonable numbers in Q2. Those with significant equity exposure performed well, though any still overweight value stocks continue to struggle. Strategies with tilts to lesser liquid parts of the fixed income market also rebounded though remain in the red for the year.
  • If you are primarily concerned with meeting your financial goals, the rise and fall in the markets counterintuitively often have opposite effects on 1) your portfolio’s value and 2) the subsequent chance of you meeting these goals. We have increasingly been pointing this out and it may help to temper the emotions of simply looking at your portfolio value, good or bad.

The end of the second quarter, much like the end of Q1 2020, was characterized with superlatives: fastest, steepest, quickest, to name a few. Yet, we would be tone deaf if we did not acknowledge the human toll the pandemic has had on you, our employees and our families. First and most importantly, we hope your health, physical and otherwise, is at least OK and trending better.