What’d I Miss?

During the first half of 2020, the stock market has shown itself to be every bit as volatile and unpredictable as investors often fear.  As measured by the S&P 500, stocks generated a total return of 1.78% for June, and are now -3.18% for the year; stock prices have staged a truly unprecedented rebound.  According to Bespoke Investment Group (July 2, 2020) by March 23rd, stock prices had fallen 33% in 33 days as the virus brought the worlds’ economy to a sudden stop.  In the 100 days since the March 23rd low, the S&P 500 has rallied nearly 40%, the strongest 100-day return since 1933. 

The pandemic driven swings in stock prices have most investors on edge.  A week ago, investors appeared concerned the rapid spread of the virus across the U.S. would put an end to the stock price rally.  In a blink, investors appear to now not be concerned with the virus data.  The news flow on the virus’ spread and its impact on the economy, jobs and the future reinforces the fact that we are truly flying blind.  Worrying is evidence the virus is actually a vascular disease, effecting many organs of the body.  It also appears to be mutating, becoming more transmissible and less deadly.  Please, wear your mask.

The market is now more clearly than ever made up of haves and have-nots. Large cap growth stocks are the indisputable darlings of the market, as measured by the IVW (iShares S&P 500 Growth ETF), up 7.7% YTD versus the value counterpart IVE (iShares S&P 500 Value ETF)  -15.6%.  That 23.3% spread is big enough to parallel park a Tesla Semi.   This spread has grown to new heights, but is not a new phenomenon.  The performance disparity between growth and value is similar, though not as extreme, to the last 10 years.  Another disturbing fact is the non-participation of both small and mid cap stocks.  The year-to-date top performing sector is technology (14.9%) and on the other end of the spectrum, energy (-34.6%) and financials (-23.6%) bring up the rear.

The mid-point in the year marks the all-important 4th of July holiday.  Happy Independence Day.  I hope you were able to celebrate our country’s declaration of independence from Great Britain, in some physically distanced manner.  My family’s celebration included watching the film version of Lin Manuel Miranda’s Broadway musical Hamilton.  If you have not seen it, I will go out on a limb and strongly recommend you do.  All that is required is a subscription to the Disney+ service and you are on your way. 

The release of Hamilton over the holiday is remarkably pertinent in light of the extraordinary behavior we are seeing out of Washington, D.C. The underpinnings of our constitution and our experiment with a new federal system were under immense pressure then, just as they uncomfortably are today.   The show reminds us that all men are created equal (except for women and African-Americans) and its brilliant multi-ethnic cast highlights the degree to which freedom and equality remain challenges for us.  We also learn that we have Alexander Hamilton to thank for securing a powerful and enduring banking system, and I expect he would be pleased with the way the Federal Reserve has upped its game to rescue us from a second financial crisis.

The fiscal and monetary stimulus in place (with more pending) are likely to be transformative for the economy.  We cannot see the benefits yet, but signs are emerging.  Some recovery in the job market is evident, with the number of workers on temporary layoff beginning to fall, from 11.5% to 6.6% in the last two months.  This improved employment is matching businesses reopening.   How far we can extrapolate forward with the outbreak of the virus widening is unclear.  Earnings season begins next week.  This will be telling as a majority of S&P 500 companies have cut or suspended guidance.  I am optimistic that the companies we own will continue to put up numbers, as we continue to eye opportunities in more economically sensitive businesses that may pick up steam with a re-emergence of economic growth.

Overall, I am pleased with our positioning and how our stock portfolios have performed in a most difficult year.  We are continuing to work remotely, and find it (with the help of Zoom) quite effective.  If you would like to review your accounts or have any questions please do not hesitate to call or email.  We are all available for you.  Please take good care.  


Bruce Hotaling, CFA

Managing Partner

The views and opinions stated herein are those of Bruce Hotaling, are as of this date, and are subject to change without notice. Information contained in this report was received from sources believed to be reliable, but accuracy is not guaranteed. Investments are subject to market risk, including the possibility of loss of principal. Past performance does not guarantee future results. The S&P 500 is an unmanaged index of 500 widely held stocks. Investors cannot invest directly in an index. The PE ratio (price/earnings) is a common measure of relative stock valuation. This note contains forward-looking statements, predictions and forecasts (“forward-looking statements”) concerning our beliefs and opinions in respect of the future. Forward-looking statements necessarily involve risks and uncertainties, and undue reliance should not be placed on them. There can be no assurance that forward-looking statements will prove to be accurate, and actual results and future events could differ materially from those anticipated in such statements.

Bruce’s Monthly Newsletter

Archived Newsletters