Summer 2020 Market Quarterly

Welcome Summer! After what seemed a short, wet and cold spring, summer is now here.  We’re getting plenty of heat in CT and very limited rainfall.  Not the best scenario for growing grass (as we’ve been trying to do here on our home project), but nice for most everything else.  I hope all of you are enjoying the nice weather.  As I always say, the nice weather doesn’t last long in CT, enjoy it while you can.  Be well and be safe.

The photo below is our dog, Gillan.  We brought Gillan home last August as a puppy and he turned one-year old in May.  Gillan is a mix of pit bull and bulldog, so he’s quite a solid hunk of muscle, and mostly well-behaved.  He’s become best friends with our other dog, Riley.  The two of them play together almost constantly.  It’s fun to watch and tires them both out nicely.  My apologies for writing about our dogs two newsletters in a row, but we don’t have much else to talk about given our COVID-19 lockdown.

Gillan
 

Last Quarter Round Up

The second quarter of 2020 was another one for the history books.  After being plunged in the COVID-19 global pandemic and the markets getting thumped in the first quarter, the second quarter saw a stunning recovery.  Virtually all investments rose with the S&P 500 gaining +20.54%, international markets were up +14.88% and emerging markets were up +18.08%.  The U.S. aggregate bond index was up +2.90% and short-term treasuries were up +0.15%.  The S&P 500 closed the quarter only 8.44% down from its all-time high of 3,386.15 set on February 19.

During the quarter we watched the continued unfolding of the COVID pandemic with over 10 million global cases and over 500,000 global deaths attributed.  Each country took its own path in responding to the virus with varying levels of success.  In the U.S. we did see a flattening of the infection curve and, for the most part, prevented the collapse of our healthcare system.  But by the middle of June new infection cases were starting to spike again.  Most attribute the increase to the gradual re-opening of state economies and the easing of social distancing protocol.  While that is no doubt true, another part of the explanation would likely include the increased infections to younger people, who are generally fed-up with lockdowns and social distancing, but also have far lower rates of hospitalization than older people.  Another, and harder to prove part, would be the country-wide social justice protests that took place with little attention paid to wearing face masks or social distancing.

Current Quarter Outlook

The good news (for now) is that even though infections are hitting new highs, hospitalizations and deaths are nowhere near the levels seen in April, suggesting that these recent infections may be mostly younger people.  The problem is that given the delays seen previously with COVID infections we may be only a few weeks away from seeing hospitalizations and deaths increase precipitously.  Time will tell.

Last quarter we suggested that the market drawdown was an overreaction, and that we would see a market recovery.  We further suggested that COVID-19 was not as economically deleterious as the Global Financial Crisis (GFC) from 2008-2009.  We continue to believe those suggestions are true.  Now however, we are cautioning in the opposite direction.  The S&P 500 hit its cycle low on March 23 at 2,237.40.  The S&P 500 closed on June 30 at 3100.29, a +38.56% increase.  We’re as happy as anyone to see that recovery, but we are very concerned that the markets have gotten ahead of themselves trading this close to the all-time high.  We don’t know how the first phase of the virus will pass (given the recent increase in infections), let alone what might happen in a second phase.  We don’t know if a vaccine or treatment will become available or be effective.  We don’t know how many small businesses will permanently close due to the recession, and we certainly don’t know if we can expect another rapid fiscal-stimulus response out of Washington D.C.  Given this long list of unknowns, we worry about how the markets can be trading at this level.  Our nine to twelve-month forecast is for the S&P 500 to be in the 3,100 to 3,200 range.  Just about where we are trading at today.

Barron Financial Group, LLP is a fee-only Registered Investment Advisor regulated by the Connecticut Department of Banking.

This newsletter is for general information only and should not be considered investment advice.  Investors should consult with a trained investment professional to discuss their particular situation.