06/15/2020
06/15/2020
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Categories
Weekly Investment Update
US equity markets, as measured by the S&P 500 index, declined 5% last week[1] as fears of the potential for a “second wave” of COVID-19 cases increased. Most of the decline for the week occurred on Thursday when the S&P 500 was down nearly 6% from the previous session; it was the worst day for the index since March. According to data compiled by Johns Hopkins University, several states including Arizona, California, Florida, and Texas are experiencing increased infections. Despite the increase in regionalized “hot spots” the total amount of confirmed new virus cases in the US continues to trend lower.
However, for several weeks after the late March bottom, stocks rallied nearly 50% as investors were seemingly hoping for successful virus mitigation and a quick (“V-shaped”) economic rebound. Chart 1 shows the price of the S&P 500 index relative to expected earnings of its underlying companies over the subsequent twelve months. As of mid-June, this measure of stock market valuation had gotten into expensive territory, likely because investors were giving less consideration to the lower earnings expectations of the next twelve months, and instead looking forward to more optimistic expectations for earnings in 2021 and 2022 (Chart 2).
Chart 1: S&P 500 Price-to-Expected Earnings
Source: JPMorgan Guide to the Markets
Chart 2: S&P 500 Historical & Expected Earnings
Source: JPMorgan Guide to the Markets
Markets tend to overshoot to both the upside and the downside, particularly during periods of extreme volatility like we’ve witnessed in 2020. The reality is that the current recession may ultimately be less bad than the extreme pessimism implied in March, but the recovery may take longer than implied by the optimism of April and May. Given the fluidity of the situation surrounding the pandemic and its potential to impact the global economy, heightened market volatility for the foreseeable future would not be surprising. While it is nearly impossible to predict how the circumstances related to COVID-19 will evolve, we remain optimistic on recent medical developments as well as fiscal and monetary stimulus.
Key Economic Releases This Week
Source: Marketwatch
Asset Class Returns
Source: Morningstar, Bloomberg, US Treasury (total returns shown gross of fees)
As of June 12, 2020
Prices & Interest Rates
Source: Morningstar, Bloomberg, US Treasury (total returns shown gross of fees)
As of June 12, 2020
[1] Morningstar
Past performance may not be representative of future results. All investments are subject to loss. Forecasts regarding the market or economy are subject to a wide range of possible outcomes. The views presented in this market update may prove to be inaccurate for a variety of factors. These views are as of the date listed above and are subject to change based on changes in fundamental economic or market-related data. Please contact your Financial Advisor in order to complete an updated risk assessment to ensure that your investment allocation is appropriate.
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Categories”}},{“type”:”list_item”,”source”:{“query”:{“name”:”categories.customCategories”,”arguments”:{“id”:0,”offset”:0,”limit”:10,”order”:”term_order”,”order_direction”:”ASC”}},”props”:{“content”:{“name”:”name”,”filters”:{“search”:””}},”link”:{“name”:”link”,”filters”:{“search”:””}}}}}],”name”:”Blog Category List”}]},{“name”:””,”type”:”column”,”props”:{“image_position”:”center-center”,”media_overlay_gradient”:””,”width_small”:”2-3″},”children”:[{“name”:””,”type”:”headline”,”props”:{“title_element”:”h1″,”item_maxwidth”:”large”,”content”:”Weekly Investment Update”},”source”:{“query”:{“name”:””},”props”:{}}},{“name”:””,”type”:”text”,”props”:{“margin”:”default”,”column_breakpoint”:”m”,”content”:”
US equity markets, as measured by the S&P 500 index, declined 5% last week[1] as fears of the potential for a \u201csecond wave\u201d of COVID-19 cases increased.\u00a0 Most of the decline for the week occurred on Thursday when the S&P 500 was down nearly 6% from the previous session; it was the worst day for the index since March.\u00a0 According to data compiled by Johns Hopkins University, several states including Arizona, California, Florida, and Texas are experiencing increased infections.\u00a0 Despite the increase in regionalized \u201chot spots\u201d the total amount of confirmed new virus cases in the US continues to trend lower.\u00a0\n
However, for several weeks after the late March bottom, stocks rallied nearly 50% as investors were seemingly hoping for successful virus mitigation and a quick (\u201cV-shaped\u201d) economic rebound.\u00a0 Chart 1 shows the price of the S&P 500 index relative to expected earnings of its underlying companies over the subsequent twelve months.\u00a0 As of mid-June, this measure of stock market valuation had gotten into expensive territory, likely because investors were giving less consideration to the lower earnings expectations of the next twelve months, and instead looking forward to more optimistic expectations for earnings in 2021 and 2022 (Chart 2).”},”source”:{“query”:{“name”:””},”props”:{}}},{“type”:”text”,”props”:{“margin”:”default”,”column_breakpoint”:”m”,”content”:”
Chart 1: S&P 500 Price-to-Expected Earnings”}},{“type”:”image”,”props”:{“margin”:”default”,”image_svg_color”:”emphasis”,”image”:”wp-content\/uploads\/sites\/8\/2020\/06\/sp-price-to-expected-earnings.png”}},{“type”:”text”,”props”:{“margin”:”default”,”column_breakpoint”:”m”,”text_size”:”small”,”content”:”
Source: JPMorgan Guide to the Markets”}},{“type”:”text”,”props”:{“margin”:”default”,”column_breakpoint”:”m”,”content”:”
Chart 2: S&P 500 Historical & Expected Earnings”}},{“type”:”image”,”props”:{“margin”:”default”,”image_svg_color”:”emphasis”,”image”:”wp-content\/uploads\/sites\/8\/2020\/06\/sp-historical-and-exp-earnings_6.15.png”}},{“type”:”text”,”props”:{“margin”:”default”,”column_breakpoint”:”m”,”text_size”:”small”,”content”:”
Source: JPMorgan Guide to the Markets”,”margin_remove_top”:false,”margin_remove_bottom”:false}},{“name”:””,”type”:”text”,”props”:{“margin”:”default”,”column_breakpoint”:”m”,”content”:”
Markets tend to overshoot to both the upside and the downside, particularly during periods of extreme volatility like we\u2019ve witnessed in 2020.\u00a0 The reality is that the current recession may ultimately be less bad than the extreme pessimism implied in March, but the recovery may take longer than implied by the optimism of April and May.\u00a0 Given the fluidity of the situation surrounding the pandemic and its potential to impact the global economy, heightened market volatility for the foreseeable future would not be surprising.\u00a0 While it is nearly impossible to predict how the circumstances related to COVID-19 will evolve, we remain optimistic on recent medical developments as well as fiscal and monetary stimulus.”},”source”:{“query”:{“name”:””},”props”:{}}},{“type”:”text”,”props”:{“margin”:”default”,”column_breakpoint”:”m”,”content”:”
Key Economic Releases This Week”}},{“type”:”image”,”props”:{“margin”:”default”,”image_svg_color”:”emphasis”,”image”:”wp-content\/uploads\/sites\/8\/2020\/06\/economic-releases_6.15.png”}},{“type”:”text”,”props”:{“margin”:”default”,”column_breakpoint”:”m”,”text_size”:”small”,”content”:”
Source: Marketwatch”}},{“type”:”text”,”props”:{“margin”:”default”,”column_breakpoint”:”m”,”content”:”
Asset Class Returns”}},{“type”:”image”,”props”:{“margin”:”default”,”image_svg_color”:”emphasis”,”image”:”wp-content\/uploads\/sites\/8\/2020\/06\/asset-class-returns_6.15.png”}},{“type”:”text”,”props”:{“margin”:”default”,”column_breakpoint”:”m”,”text_size”:”small”,”content”:”
Source: Morningstar, Bloomberg, US Treasury (total returns shown gross of fees)
As of June 12, 2020″}},{“type”:”text”,”props”:{“margin”:”default”,”column_breakpoint”:”m”,”content”:”
Prices & Interest Rates”,”position_bottom”:”0″}},{“type”:”image”,”props”:{“margin”:”default”,”image_svg_color”:”emphasis”,”image”:”wp-content\/uploads\/sites\/8\/2020\/06\/prices-and-interest-rates_6.15.png”}},{“type”:”text”,”props”:{“margin”:”default”,”column_breakpoint”:”m”,”text_size”:”small”,”content”:”
Source: Morningstar, Bloomberg, US Treasury (total returns shown gross of fees)
As of June 12, 2020\n
[1] Morningstar”}},{“type”:”html”,”props”:{“content”:”
Past performance may not be representative of future results. \u202fAll investments are subject to loss.\u202f Forecasts regarding the market or economy are subject to a wide range of possible outcomes. \u202fThe views presented in this market update may prove to be inaccurate for a variety of factors.\u202f These views are as of the date listed above and are subject to change based on changes in fundamental economic or market-related data. \u202fPlease contact your Financial Advisor in order to complete an updated risk assessment to ensure that your investment allocation is appropriate.\u202f\u202f\u00a0″,”text_align”:”left”,”text_size”:”small”,”text_color”:”muted”}}]}]}]}],”version”:”2.2.2″} –>