Investment Market Update, Q2 2020

Posted by Michael Aloian on Jul 2, 2020 3:45:48 PM
    
The S&P 500 Index showed great resilience to the negative news flow and achieved the best quarterly performance since 1998. Despite media reports about the virus infection rate increases, potential new tariffs on European and Chinese goods, and early Presidential election polls, the market rebounded from the first quarter decline. The S&P 500 Index is still down by 4% year-to-date, but the Nasdaq is up 12.1%. This disparity is the real news for the markets as investors crowd into the digital age/new economy companies while remaining indifferent to the deep value and cyclically-oriented sectors. Apple, Amazon, Alphabet, Microsoft and Facebook were the dominant market leaders while Boeing, Caterpillar, General Electric and General Motors all declined. The information technology sector rose 31% in the first half of the year, basic materials declined 4%, industrials fell 10%, financials dropped 17%, and energy cratered 40%. Small cap and mid-cap indexes underperformed, with declines of 13% each, which indicates investors are wary of the heavy-weightings in deeply cyclical bank, retail and REIT stocks.
 
As the summer progresses and trading volume declines, we will see market volatility, but mostly range-bound trading as investors attempt to measure the slow reopening of the economy and the effect on short and long-term earnings growth for corporations. There are low earnings expectations for the second quarter and analysts anticipate a “kitchen sink” quarter of write-downs, impairments and restructurings among old-economy companies. Investors are already discounting this and revising their expectations for higher future earnings despite the lack of guidance from companies. Since this quarter should be the absolute worst of this recession, revenue and earnings growth should accelerate in the second half of the year which will support valuations.
 
As the Federal Reserve continues to provide an investor-friendly liquidity cushion and interest rates remain low, expectations are growing for a new stimulus package that either focuses on infrastructure development or continued small-business support. Most state and municipal budgets are suffering with large deficits and have announced infrastructure spending postponements, layoffs and restructurings. We can anticipate another $1 trillion more in fiscal stimulus to augment the Payroll Protection Plan and to complement the highly-accommodative monetary policy. With the flatter pandemic infection curve now reaccelerating, investors have accepted that COVID-19 and the slower-growth economy must coexist. Restrained economic growth will pervade until a vaccine/treatment is discovered, which because so many companies are developing promising compounds, is anticipated by year’s end.
 
Index Second Quarter-ended 6/30/2020 Year-to-date
S&P 500 Index 20% -4.0%
S&P Mid-Cap 400 Index 23.5% -13.5%
MSCI All World Cap Index 18.7%  -7.1%
 
Investments are not a deposit, not FDIC insured, not insured by any federal government agency, not bank guaranteed and may lose value.

Posted by Michael Aloian

Michael oversees the people and policies of the Trust and Investment Management Services Department and manages the individual investment holdings of Crews Bank & Trust’s Trust clients. His clients include individuals, families, foundations, and institutions throughout the state of Florida.

Michael's education includes:
Bachelor of Arts in Economics, Harvard University, Cambridge, MA, 1982
Investment Portfolio Manager and Research Analyst since 1983
Graduate of the Florida Bankers Association Trust School, University of South Florida, Tampa, FL
Series 65 - Registered Investment Advisor
Series 52 - Municipal Securities Representative

Board member:
Florida Bankers Association, Florida Bankers Educational Foundation
Member, CFA (Chartered Financial Analyst) Institute

Michael serves on the Tampa Bay Committee on Foreign Relations and is a member of the CFA (Chartered Financial Analyst) Institute. He is immediate past-chairman of the Board of Directors for the Historic Bok Tower Gardens in Lake Wales, for which he now serves on the Investment Committee. He is a former president of both the Harvard Club of Central Florida and the Harvard Club of the West Coast of Florida. Michael is a 2005 Graduate of Leadership Tampa Bay.

Topics: Market Update, Investment