A Return to Normal?
Equities post one of their best quarters in two decades.
Despite a global pandemic, record unemployment, and continued social-distancing restrictions, equity markets just finished one of the best quarters in 20 years. The S&P 500 rose 22% in the second quarter, while continuing to remain in negative territory for the year-to-date date. Substantial gains in April and May were followed by relatively flat performance in June.
All sectors in the S&P 500 finished the quarter in positive territory. Buoyed by stay-at-home orders, the technology and consumer discretionary (including Internet and direct marketing retail stocks) sectors posted the largest advances. Energy stocks are still down 37% for the first half, but started to gain back some of the heavy losses incurred earlier in the year, rising over 32%.
The extreme volatility seen in the first quarter took a pause. The CBOE Volatility Index, better known as the VIX, ended at 30.12, higher than the 12.47 level seen in January, but lower than its all-time high of 82.69 in mid-March.
Global markets start to recover
Global macro data points have been mixed, as doubts over an economic recovery remain. China’s manufacturing activity for June beat expectations, while industrial production in Japan fell in May. In the euro area, economic sentiment and industrial confidence improved in June. However, comments by the World Health Organization indicating the “worst could be yet to come” dampened sentiment toward the end of the quarter.
While U.S. stocks are outperforming for the first half, global and emerging-market stocks outperformed their U.S. peers in June.
Consumer sentiment is starting to recover
Economic data has started to recover, but remains below pre-crisis levels. U.S. consumer confidence, as measured by the Conference Board, rose to 98.1 in June, above analyst expectations and up from 85.9 in May. Pending home sales, a leading indicator of housing activity, rose a record 44.3% in May, according to the National Association of Realtors.
Bankruptcies and unemployment continue
While unemployment figures have improved, nearly half of the U.S. population remains unemployed, according to the Bureau of Labor Statistics. Employed people as a percentage of the U.S. adult population — plunged to 52.8% in May, translating into a jobless rate of 47.2%. Bankruptcies continued as companies across industries entered insolvency, disrupted by the pandemic, as well as its effect on the global supply chain.
Will stimulus continue to move markets?
Trillions of dollars in stimulus from Congress and the U.S. Federal Reserve helped drive equity market gains in the second quarter. And that stimulus is expected to continue. Month-end testimony from Fed Chairman Jerome Powell and Treasury Secretary Steven Mnuchin reiterated their strong commitment to bolster the U.S. economy during the public health crisis, including extensions of lending facilities and additional types of aid.
The U.S. presidential election, a resurgence in coronavirus cases, and continued social unrest are all pain points that will weigh on sentiment as we enter the second half of the year. Will stimulus be enough to sustain markets and keep them afloat?
Markets are in constant flux, and the only thing certain is continued uncertainty. To learn more, visit quantumeconomics.io. This information is for educational purposes only and should not be construed as trading advice. Past performance is not an indication of future results.
