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Mid Year Market Update


We just finished the first half of what has been a wild time in the market.  Let’s take a look at some of the highlights.

 

  • The first quarter of the year the market dropped by 20% and the second quarter it rose by 20%. How is that for weird – 20 + 20 in 2020? Ultimately, the S&P500 is still down as it takes more than a 20% gain to offset a 20% loss.
  • Returns by asset class and style differ quite a bit. For the 2nd quarter, Large Cap Value was the “worst” performer of the main US styles with a return of only 14.3%. Small Cap Growth was the best of the quarter with a return of 30.6%. Now, if you look at 2020 YTD (year to date), the worst performer was Small Cap Value at -23.5% and the best was Large Cap Growth at 9.8%. During this same time period Large Cap Value returned -16.3%. I wonder how all the Dimensional Fund value-focused funds and advisors are doing?
  • Even with the miserable first quarter, Large Cap Growth leads the returns since the market low of 2009 with a total return of 653.8%. Small Cap Value’s return has been 292.8% during the same time period.
  • Overall, Fixed Income leads all major asset classes with returns of 6.1% YTD. Commodities are bringing up the rear with returns of -19.4%.
  • Since 1980, the S&P500 has averaged intra-year drops of 13.8%, but has still been positive in 30 out of 40 years. This year the S&P500 has been down 34% at its lowest and is currently down 4%, as of June 30th.
  • During the Great Depression, the real GDP dropped by 26.7%. Right now, the real GDP has declined 12.8%, which is the second biggest decline since 1910. For perspective, the real GDP declined 4% during the mortgage implosion just over a decade ago.
  • So far, the Federal government has spent just over $2.4 trillion to fight the coronavirus recession, which is roughly 12% of the GDP. These expenses cover things from the rebate checks to business loans.
  • Unemployment at the end of May was over 13%. For those with college degrees or greater it was 7.4%. The unemployment rate was just under 20% for those with less than a high school degree.
  • The fourth round of the Quantitative Easing (QE) program began March of this year where the Fed steps into the marketplace and buys Treasuries, Mortgage Backed Securities and even Loans. So far, the Fed has increased its balance sheet by $2.9 trillion. The previous three QE programs increased the Fed balance sheet by roughly $3.6 trillion over 60 months. So, this Fed has gone almost as deep in 3 months as they did over 5 years in previous Fed actions.
  • The old expression of “Don’t Fight the Fed” seems more appropriate than ever, especially when they have been buying assets, printing money, and underwriting risk.
  • Or, to quote Ray Dalio of Bridgewater Associates – “Today the economy and the markets are driven by the central banks and the coordination with the central government. As a result, capital markets are not free markets allocating assets in traditional ways.”
  • What’s that expression about if the government helps individuals it’s socialism, but if it props up businesses it’s still capitalism?
  • The percentages of Republicans and Democrats who rate national economic conditions as excellent or good are 37% and 11% respectively. The total averages 23%.