Capital Markets Update Q2 2020

Capital Markets Commentary | Capital Markets Update Q2 2020

After a devastating first quarter where equity markets experienced the fastest decline since the Great Depression, global equity and credit markets rebounded with the S&P 500 posting its best return since the fourth quarter of 1998. Aggressive central bank policy, coupled with hopes that economic indicators have bottomed, fostered a market rally. Since the March 23 market low, the S&P 500 has rebounded 39.3% leaving the index with a 3.1% decline for 2020.

Performance Drivers

Positive Performers

  • Growth continued to dominate global equity markets. The Russell 1000 Growth Index (27.8%) almost doubled the return of the Russell 1000 Value Index (14.3%).
  • Federal Reserve purchases of U.S. corporate debt through the Secondary Market Corporate Credit Facility bolstered returns as as investment grade bonds rose 9.0% and spreads tightened to 1.5%.
  • Energy stocks, the worst performing equity sector in the first quarter, sharply rebounded as one of the top performing sectors. MLPs gained 50.2% for the quarter, but are still down 35.7% for the year.

Negative Performers

  • As investor sentiment shifted to favor risk assets and COVID-19 was contained in most developed markets except the U.S., the dollar declined relative to most non-U.S. currencies.
  • The market shifted away from quality leaving U.S. Treasuries with only slight gains for the quarter which significantly lagged almost all other fixed income sectors.
  • Value strategies posted positive returns but were hindered by below-market gains of financials and utilities, and a lack of exposure to market-leading technology names. Over the past year, value now underperforms growth by 32%.

Index Returns Q2 2020

Sector Returns Q2 2020

US Treasury Bond Yield June 30 2020

Economic Recovery

A great debate over the shape of the economic recovery transpired in the popular financial press over the past quarter. Would we experience a quick V-shaped recovery? A more drawn-out U? A choppier W? A more pernicious L? If we are to believe the forecasting abilities of the equity market, the early answer appears to be a V.

The S&P 500 fell 34% between February 19 and March 23. With massive amounts of monetary and fiscal stimulus in hand, the S&P 500 recouped an impressive 77% of its drawdown by the end of June. The S&P’s second quarter return of 20.5% was only the fourth time in the post-war era a quarterly return exceeded 20%.

Economic indicators have improved as the world re-opened businesses, but a resurgence in COVID-19 cases poses new risks—leaving the investment outlook highly uncertain.

S&P 500 YTD Return Q2 2020


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The information provided herein is for informational use only and not to be construed as investment advice. Any opinions herein reflect our judgment as of this date and are subject to change. In no way should the information herein be construed as personal recommendations as it does not take into account the particular investment objectives, financial situations, or needs of individual users.

The information presented is not an offer to buy or sell securities, nor should it be construed as tax or legal advice. The historical information included herein is historical only and is not a guarantee of future performance.

Ellwood obtains information from multiple sources believed to be reliable as of the date of publication; Ellwood, however, makes no representations as to the accuracy or completeness of such third party information. Ellwood has no obligation to update, modify or amend this information or to otherwise notify a reader thereof in the event that any such information becomes outdated, inaccurate, or incomplete. Included in this report are various indices information. All indices are unmanaged and not available for direct investment. Index returns are shown gross of investment management expenses.

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Copyright ©2020 MSCI. Unpublished. All Rights Reserved. This information may only be used for your internal use, may not be reproduced or re-disseminated in any form and may not be used to create any financial instruments or products or any indices. This information is provided on an “as is” basis and the user of this information assumes the entire risk of any use it may make or permit to be made of this information. Neither MSCI, any or its affiliates or any other person involved in or related to compiling, computing or creating this information makes any express or implied warranties or representations with respect to such information or the results to be obtained by the use thereof, and MSCI, its affiliates and each such other person hereby expressly disclaim all warranties (including, without limitation, all warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any other person involved in or related to compiling, computing or creating this information have any liability for any direct, indirect, special, incidental, punitive, consequential or any other damages (including, without limitation, lost profits) even if notified of, or if it might otherwise have anticipated, the possibility of such damages.

Investments in securities are subject to investment risk, including possible loss of principal.

Bonds are subject to interest rate, price, and credit risks. Generally when interest rates rise, bond prices fall.

Investments in commodities may have greater volatility than investments in traditional securities.

Investments in emerging markets may be less liquid and more volatile. Additional risks include currency fluctuations, and political instability.

Equity investments are more volatile than bonds and subject to greater risks. Small- and mid-cap stocks involve greater risk than large-cap stocks.

High-yield fixed income securities are subject to liquidity and credit risk, and tend to be more volatile than investment grade fixed income.

Unless otherwise noted, all data herein is as of July 6, 2020.


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