Although we are only halfway through the year, 2020 has already produced historic economic and market volatility. In the first quarter, we had a sudden, sharp, global Bear Market as the potential impact of the novel coronavirus unfolded. When the US joined many other countries in declaring a national emergency on March 13, our economy fell into its first recession since 2008-2009. While COVID-19 continued to spread in the second quarter and US unemployment spiked up from 3.5% in February to 14.7% in April, the stock market has come back strong. May and June’s economic reports have shown improvement over April’s dismal numbers and consumers appear eager to resume spending.
Investment and economic changes so far in 2020 have been extreme. In April, most Americans stopped driving their cars. Oil prices briefly dropped below $0 per barrel, but have since recovered to pre-pandemic levels. Short-term US interest rates dropped back toward 0%, just as investors have accumulated record amounts of cash in money market funds and bank deposits. Amid all the pandemic-driven changes, one investment trend has endured: Large US technology companies continue to gain greater control over the US economy and their stock values have helped to drive the NASDAQ Composite Index to new all-time highs.
While Big Tech has allowed many of us to continue to be employed working from home, the dominance of these large tech companies in recent years has penalized diversified investors. While the broader stock market is struggling to regain 2019’s year-end values, Amazon, Apple, Google and Microsoft are prospering. Sectors like real estate and energy are grappling with financial and consumer changes. As the economy evolves in response to COVID-19, protests against racial injustice are highlighting the inequality that has grown around the world in recent decades.
Amid the pandemic and social unrest, 2020 is also a Presidential election year. As we’ve been told, elections have consequences and that may be an understatement as US citizens go to the polls this November. Despite all of the uncertainty, recent investment market gains have been driven by optimism about potential economic recovery down the road. Until our children are able to return to school, college and child care, the productivity of working parents will continue to be limited. The decision to re-open schools and colleges will primarily be based on health trends, but political concerns will also influence these decisions.
As we look ahead to the second half of 2020, fiscal and monetary stimulus will continue to address risks to the economy. Low interest rates are pushing homeowners to refinance and drawing new home buyers into the market. Consumer and business confidence will be critical to a sustained recovery. The combination of the COVID-19 pandemic, social unrest and US elections likely means more market volatility in the 3rd quarter. As investors, we need to maintain confidence in our long-term investment strategy. When we look back at 2020, let’s hope we are able to see it as a turning point for better healthcare, greater social justice and a more stable, equitable economy.
This article was authored by Christopher Borden, a financial advisor and Managing Partner located at Canby Financial Advisors, 161 Worcester Road, Framingham, MA 01701. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 508.598.1082 or [email protected]
Disclosure: Certain sections of this commentary contain forward-looking statements based on our reasonable expectations, estimates, projections, and assumptions. 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. Diversification does not assure a profit or protect against loss in declining markets. Investments are subject to risk, including the loss of principal. Because investment return and principal value fluctuate, shares may be worth more or less than their original value. Some investments are not suitable for all investors, and there is no guarantee that any investing goal will be met. Talk to your financial advisor before making any investing decisions. The S&P 500 is a market-capitalization-weighted index of the 500 largest U.S. publicly traded companies. The NASDAQ Composite Index measures all NASDAQ domestic and international based common type stocks listed on The NASDAQ Stock Market.
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