June Market Recap
July 1, 2020
Inequality was everywhere in the first six months of 2020. Or perhaps it’s more accurate to say eyes were opened to the inequality that has saturated our country and the world for generations.
As we try to put the first half of the year into context, that seems a recurring theme. In the early stages of the COVID-19 pandemic, some countries were hit especially hard while others had the benefit of extra time and medical data to prepare. Once the US economy effectively shut down in March to slow the spread of the virus, certain industries (hospitality, travel, restaurants, retail) struggled to survive while others (technology, media, etc.) remained relatively insulated.
Data, meanwhile, showed that low-income Americans were disproportionately affected by the pandemic in terms of job security, likelihood of virus exposure, and healthcare. This undoubtedly contributed to Americans’ response to the death of George Floyd by Minneapolis police and the national protests that followed.
As economic uncertainty gripped financial markets, stocks fell indiscriminately in February and March. In both April and May, all 11 sectors in the S&P 500 climbed higher.
June, however, shined a brighter light on the “haves” and “have-nots” when it comes to individual companies. The three major US equity benchmarks booked gains last month, but a peek under the hood reveals not all cylinders are firing.
Six of the 11 sectors in the S&P 500 were negative, with Utilities (-4.7%) and Health Care (-2.4%) the worst of those. Technology (+7.1%) returned the largest gains, climbing more than 7% for the second month in a row. Consumer Discretionary (+5%) was close behind.
In terms of year-to-date performance, Tech (+15%) and Consumer Discretionary (+7.2%) are the only two sectors with positive returns. Halfway through 2020, four sectors in the S&P 500 have lost more than 10%; Energy (-35.3%), Financials (-23.6%), Industrials (-14.6%), and Utilities (-11.1%).
When it comes to diagnosing recent performance, it’s Big Tech and everything else. The year-to-date spread between the NASDAQ and the Dow is incredible.
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The first week of June saw stocks still riding the momentum from previous months. A shockingly positive jobs report on June 5 showed the US economy added 2.5 million jobs in May. The national unemployment rate, as cited in the report, fell to 13.3%, a surprise big enough to jolt the Dow 830 points higher.
On June 9, the NASDAQ eclipsed 10,000 for the first time, a milestone especially impressive considering it came during a global pandemic and economic recession.
The next day, Fed Chair Jerome Powell committed to keeping interest rates near zero for another two-and-a-half years, though 2022. Powell also said the pace of the Fed’s asset purchases (i.e. bond buying) would accelerate in the months to come.
In his own words: “We’re not even thinking about thinking about raising rates,” Powell said. That’s not a typo. Powell went to great lengths to suggest it will be a long time before the Fed Funds rate moves higher.
Suggestions of favorable policy were outweighed, however, by the Fed’s sobering economic outlook of a 6.5% contraction in GDP this year followed by 3-5% GDP growth in 2021 and 2022. Once the news was digested, stocks sold off aggressively on June 11, which proved to be the market’s worst single-day drop since the March 23 low. The Dow fell nearly 1,900 points (6.9%).
The economic data did show reasons for optimism. The latest retail sales and consumer spending figures showed a sharp rebound from previous months and further fueled hopes for a sharper recovery. All of that, of course, is predicated on the idea that public health conditions improve rather than worsen.
The momentum in equity prices stalled in the second half of June and much of that can be attributed to the reality that, medically speaking, the spread of coronavirus is again accelerating in much of the country. Infectious disease expert Dr. Anthony Fauci admitted earlier this week, “We are moving in the wrong direction,” in terms of virus containment, and said he would not be surprised if the US eventually reports 100,000 new cases per day later this summer.
The results of the banking sector’s latest stress tests also threw some cold water on stock bulls late in June. In order to ensure our country’s largest financial institutions “maintain enough capital to weather the economic strain brought on by the current recession,” the Fed banned stock buybacks and imposed limitations on the size of stock dividends for the 33 largest US banks.
Oil prices rose 10.7% in June with West Texas Intermediate Crude ending the month at $39.70 per barrel. Rising oil helped Emerging Market equities (+6.6%) outperform last month. Non-US Developed Markets (+3.5%) also fared relatively well, thanks in part to the US dollar weakening.
Ten-year US Treasury bonds yielded 0.65% as of June 30, unchanged from a month earlier. Ten-year yields did climb as high as 0.96% on June 5 before retreating.
Marks Group Wealth Management performs in-house analysis on companies. Statistical information on mentioned companies is obtained from company reports, news releases and SEC filings. The information set forth herein has been derived from sources believed to be reliable, but is not guaranteed as to accuracy and does not purport to be a complete analysis of the securities, companies or industries involved. Opinions expressed herein are subject to change without notice. Additional information is available upon request.
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