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The 2020 Investment Rollercoaster Ride

Jul 13, 2020 | Investment Updates

SageVest Wealth Management Q2 Investment Commentary graphic

SageVest Wealth Management’s latest quarterly commentary is now available. Highlights include:

  • Stocks stage the strongest recovery in more than 20 years.
  • The U.S. and countries around the world have largely reopened for business, still with massive unemployment remaining.
  • The world and the financial markets wait to see the impacts of the virus as social and business activity resumes.

A Stunningly Impressive Quarter

2020 is a year like none other in so many ways, including stock market performance. Earlier this year, stocks entered a full bear market decline in just a few short weeks during the onset of the coronavirus global pandemic. It was the worst first quarter for stocks in history. Yet, stocks quickly staged one of the fastest bull market recoveries. The second quarter was the strongest quarter for stocks in more than 20 years. The S&P 500 index staged a 20% rally, representing its largest quarter percentage gain since the end of 1998.

After completing a full market cycle (from decline to recovery) within less than two full quarters, questions certainly loom as to where the markets are headed during the second half of the year, which will include election results.

Thus far, the market recovery resembles a “V” shape with a rapid decline followed by a rapid recovery. Now, the question is if the positive trend will continue or if the recovery will ultimately resemble a “W”, with a second looming stock market decline on the horizon.

Why Are Stocks Recovering So Quickly?

Given the dramatic performance of stocks during an ongoing pandemic, one of the most frequent questions we receive is: “Why are stocks recovering so quickly?” As we discussed in our May correspondence, we see five distinct reasons why stocks are surging while the economy remains in a state of despair.

  1. Stocks are forward looking. Stocks almost always begin to recover well in advance of a full economic rebound.
  2. Massive government stimulus was quickly offered with a $1.6 trillion package from the Federal Reserve and Congress, helping to support individuals and businesses alike.
  3. Recognition that the virus will be temporary.
  4. Businesses are reopening across the country and worldwide, giving hope of economic revival.
  5. Medical progress is occurring at the fastest pace in history.

Medical Advancements

Recognizing that we all need something positive to focus on, medical advancements are bountiful. Dozens of new vaccine therapies are in development around the globe, with several entering late stage trials. Efforts are progressing quickly at the University of Oxford, AstraZeneca, Moderna, Pfizer and many other companies and institutions.

Society has never experienced such an expansive approach for a medical breakthrough with massive funding from private and public sectors. The number of efforts currently underway are creating a perplexing situation where companies are competing for people to conduct human trials while so many vaccine efforts advance at warp speed.

The reality is that we’re still months away from a vaccine, and likely several months to a year away from widespread availability to billions of people. However, hope is growing stronger every day, giving inspiration to humanity and the investment markets that a return to normal life and normal business activities is on the horizon.

Lingering Effects

While we’re optimistic about medical advancements and an eventual economic recovery, we’re also realistic about the current state of the economy and lingering effects.

Nearly 20 million Americans filed for unemployment in the wake of COVID-19. The sharp spike in unemployment was unprecedented at a pace that we’ve never seen, not even during the Great Depression.

Fortunately, we’re seeing a resurgence of employment with approximately 4.8 million jobs regained in June as states reopened. This is a ray of sunshine, but we would be foolish not to recognize the fact that grey clouds persist. Namely, these include:

– Approximately 15 million of the 20 million people who lost their jobs since March remain unemployed.
– While people are returning to work, many are only returning part-time, or at reduced wages.
– Even for those who remained employed, millions are facing pay cuts. We are seeing pay cuts in many sectors, including those typically unaffected such as physicians, attorneys and executives.
– The ability to work remains uncertain for vast segments of society challenged by child or family care needs or who are medically compromised.

Hence, while we’re making economic progress, a “V” shaped recovery is not yet certain. There will be systemic financial effects of COVID-19. As to whether these are taken into consideration relative to current market valuations is yet to be determined.

A Second Wave

Perhaps the greatest risk that persists is a second wave of infections. We’ve already seen daily infection rates climb to new record highs as states and economies reopen. Widening efforts to require or encourage mask wearing could help to flatten the infection curve and promote economic recovery. However, no one can predict future infection rates or if states or businesses will remain open. Apple, as an example, reclosed selected stores in virus hotspot areas.

As Dr. Fauci stated “You don’t make the timeline, the virus makes the timeline.” This statement exemplifies why economic and market guidance are incredibly challenging, if not impossible, during COVID-19. Recognizing this, more than 35 percent of S&P 500 companies have suspended forecasts for 2020.

The Perils of Market Timing

The first half of 2020 has become a prime example of how dangerous market timing can be. Those who sold stocks during the market downturn are now facing a challenging decision of when to buy back into stocks. The opportunity of another significant stock decline might present, but it might not.

We recognize that volatility could easily persist until a vaccine becomes available, and perhaps beyond as the economy works to rebuild. Regardless of how the markets progress, our strategy will remain consistent. We will trim back on stocks as the markets rise and buy in as the markets decline. This follows the tried and proven strategy of selling high and buying low, while maintaining a long-term investment approach. This has paid off for our clients, and we remain committed to focusing on your long-term objectives while securing your short-term needs.

Looking Ahead

We want to remind our clients that we strongly encourage continued financial planning in conjunction with your ongoing investment management. Ensuring you’re making wise financial decisions is just as important as achieving long-term investment returns. As always, we encourage you to contact us with any questions as we remain committed to helping you achieve your financial goals.

Prepared by SageVest Wealth Management. Copyright .
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