Capital Markets Update Q3 2020

Capital Markets Commentary | Capital Markets Update Q3 2020

The third quarter started off with a bang in a continuation of the second quarter’s sharp rebound. By August 18, the S&P 500 Index fully recovered the 34% loss experienced during the February-March correction. As cities across the globe continued their re-opening plans after pandemic-induced shutdowns and central banks sustained their support for global markets, markets moved higher during July and August. In September, market sentiment turned negative, with most risk assets posting losses. Still, the third quarter was solid overall, with most market segments posting positive results.

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Performance Drivers

Positive Performers

  • The trend of growth stock dominance – particularly for technology-oriented names – continued into the third quarter, as the Russell 3000 Growth Index’s 13% return trounced the 5% return of the Russell 3000 Value Index.
  • Credit markets remained strong, with the Bloomberg Barclays U.S. Corporate High Yield and S&P/LSTA Leveraged Loan indexes both returning over 4% during the third quarter.
  • The MSCI Emerging Markets Index posted a solid 9.6% return, although the results were driven primarily by Asian companies in the technology/internet sectors.

Negative Performers

  • Value stocks lagged again during the third quarter, driven primarily by the large weighting in subpar-returning financial stocks and dreadful performance in the energy sector.
  • Energy sector stocks and MLPs posted large losses during the quarter on concerns of weakening oil demand.
  • With Treasury yields stabilizing at such low levels, it’s perhaps no surprise that the BloombergBarclays U.S. Treasury Bond Index posted a paltry 0.2% gain for the third quarter.




Since the pandemic-induced market sell-off in the first quarter, markets have rallied sharply but the gains have been far from uniform across companies and industries. Returns for the S&P 500 Index have been narrowly led by a handful of technology/internet stocks – in particular, Amazon, Apple, Facebook, Google and Microsoft. A market capitalization-weighted basket of those five stocks were up 56% through the first eight months of 2020, while the rest of the S&P 500 Index was flat. However, sentiment shifted during the month of September, with these five names falling 9% while the remaining stocks fell just 2%.
This change in leadership from growth to value stocks was limited to large cap stocks. While the Russell 1000 Growth Index trailed its Value counterpart during September, it did not carry over to small caps – with the Russell 2000 Value Index once again lagging growth names, returning -5% and -2%, respectively.

Value tends to lag entering a recession and outperforms as the economy recovers. It appears that stocks have not yet fully priced in a sustained, broad-based recovery in economic activity.




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Important Disclosures

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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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 September 30, 2020.


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