Summer 2020 Quarterly Newsletter
After a challenging start to the year, stocks came roaring back in the second quarter. Many are asking how the economy and stock market can tell such a different story. Any answer includes some speculation, but we believe markets are essentially ignoring anything that can be classified as a “short-term COVID-19 effect.” Employment numbers in March, April and May were historic. Headline unemployment went from below 4% in February to over 14% by mid-May. June saw the largest job creation numbers in history, but these were obviously skewed by workers returning to their old jobs. We believe that employment will recover slowly over the next 18 to 24 months. That said, we may see surprising gains in productivity as companies reduce their overall workforce and increasingly make better use of technology.
Meanwhile, major equity indexes have recovered most of their losses. There has been a noticeable split in the performance of large growth stocks, particularly technology, biotechnology and value stocks. Smaller company stocks have also lagged significantly in the recovery. There is some logic in this trend as smaller companies are less capable of handling business interruptions and technology and biotechnology are in some cases benefiting from the effects of COVID-19.
We expect low interest rates and low inflation to be the norm for the next several years. Historically, this would be a good environment for stocks, but it is questionable whether history can help guide our current environment. We believe that it is difficult if not impossible to predict how the market will behave in the short term. However, we do believe that investors can still find opportunities in this market if they remain focused on the long term.
These are ever-changing times, but we are here to help. Throughout this challenging year we have been available by phone or email. If we can help, please never hesitate to give us a call.
This article was featured in our Summer 2020 Quarterly Newsletter available here:In the News, Market Update, Market Volatility