We are halfway through the third quarter of 2020 -- exactly five months from the S&P 500’s worst daily decline since 1987, a 9.5% decline which brought the S&P 500 down a total of 20% from its February 19 peak. As of this writing the S&P 500 is nearly back to its all-time high of 3386.15 recorded on February 19 and the tech-heavy Nasdaq Composite stock index has fared even better, reaching new records as of late.
This data may seem incompatible with the latest reports of Covid-19’s damage to our economy. Second quarter U.S. Gross Domestic Product (“GDP”), the total monetary value of the finished goods and services produced within a country’s borders, showed the U.S. economy contracted at an annualized rate of 32.9% from April through June. In addition, the U.S. economy is still down close to 13 million jobs during the pandemic, despite adding 4.8 million jobs in June and 1.8 million jobs in July.
As we have shared with our readers and clients, the stock market is a leading indicator, meaning changes in stock prices reflect investors’ expectations for the future of the economy, not its present state. In addition, this recession is unique in that it is easier for investors to see the eventual recovery from this pandemic. However, a great deal of uncertainty remains.
The Federal Reserve’s “whatever it takes” response and the federal government’s massive spring stimulus (and a possible second stimulus) have gone a long way in buoying investor confidence. Investors may yet run away from stocks if these government safety nets prove to be insufficient or if our way out of this pandemic becomes muddled.
If this happens, we will continue as the voice of calm, reminding our readers and clients of the key principles of successful investing: maintaining perspective and discipline through periods of uncertainty in order to achieve important long-term goals.
Does the Election Matter?
Adding to Covid-19’s 2020 uncertainty is our upcoming elections. Joe Biden’s selection of Senator Kamala Harris as his running mate upstaged coronavirus headlines in many news outlets this week (something that has not happened in a while) and provided another reminder that our elections are around the corner. The run-up to a U.S. Presidential election provides a stream of speculation and uncertainty on how one administration or another may affect investment portfolios, but you may be surprised to see the facts prove otherwise.
Economists at Vanguard analyzed more than 150 years of asset returns using an allocation of 60% stocks and 40% bonds and found only a “modest return differential under administrations of different parties” and “a modest return differential exists between presidential election years and non-election years.” While Vanguard cautioned that historical performance is not a guarantee of future results, it pointed out that “150 years is a large enough data set to form reasonable future expectations.” See for yourself.
100 Years of Women Voting
Finally, while we’re on the subject of voting, August 26, 2020 marks 100 years since ratification of the 19th Amendment guaranteeing women the right to vote. In 1848, when women started organizing to demand the right to vote at the first women’s rights convention in Seneca Falls, N.Y., women’s legal rights were vastly different from today. Women were excluded from higher education and most professions, any wages earned went directly to their husband and married women couldn’t own property in their own name.
We reflect on this important milestone and celebrate the many women clients we serve each day, who independently or together with their spouses, steward their wealth and successfully plan for the life they imagine.
It is our pleasure to serve you. We hope you make the most of the remaining days of summer.