Stocks fared well during the third quarter despite September’s weakness, with the S&P 500 Index returning about 9%. The quarterly gain brought the return through the first nine months of the year to 5.6%. Here we peel back the onion on the third quarter’s stock performance to look at what worked and what didn’t.
The S&P 500 Index just closed the door on its best August since 1986, making new all-time highs along the way, while also closing up five months in a row.
“Better late than never.”
LPL Financial Research is looking ahead for new ways to face current challenges and prepare for better times. Use our Midyear Outlook 2020 to chart a path to eventual economic and market recovery. Plus, learn how stocks may predict the next president!
The gradual reopening of the US economy has started to lift Main Street sentiment from depressed levels, according to the Federal Reserve’s (Fed) Beige Book. Despite growing concerns about rising COVID-19 cases in several pockets of the country, economic activity has returned in most industries.
COVID-19 has decimated global demand as lockdowns materially re-shaped consumer and business behavior. Even as states have begun to re-open, significant questions remain about how demand could recover. The May retail sales print provided one of the first glimpses of that answer, rising 17.7% month over month and marking the largest monthly gain since data began in 1992.
In many ways, what we’ve seen so far in 2020 has been both record-breaking and devastating. From the S&P 500 Index peak on February 19 to the bear market lows March 23, stocks lost 33.9%. Now, 50 trading days later, stocks have gained 39.6%, for the largest 50-day rally since the S&P 500 moved to 500 stocks in 1957.
What a ride 2020 has been for investors. The fastest bear market ever, now one of the steepest recoveries ever. After being down more than 30% for the year on March 23, this recovery is extremely impressive. In fact, before yesterday, over the previous 13 days the S&P 500 had gained nearly 25%, for the best 13-day bounce since July 1938.
I hope this finds you and your family doing well!
Part of our communication protocol is to reach out to you when the equity markets enter bear market status – down more than 20% at closing from a previously established high. We did that near the end of last week on both the Dow Jones Industrial Average and the S&P 500. You will note that we sent a similar communication when we entered correction territory (down 10%) on February 28th. The S&P 500 needed only 16 days to go from a new all-time high, on February 19th, to a bear market, resetting the previous record of 28 days.
You may be wondering why it’s called a bear market. The term bear market gets its name from the way a bear attacks its prey, swiping its paws downward. Similarly, the bull market, an upward trending market with an absence of a 20% decline, gets its name from the way a bull attacks, thrusting its horns into the air. The present bear market brought to an end the longest bull market in history at just over 11 years, almost to the day. And here’s the kicker… both bull and bear markets are arbitrary, made-up numbers to fit nicely in a box so we can understand them. To me, the decline we experienced from September to December of 2018, down 19.8%, sure felt like a bear market, although it did not technically qualify. And, neither did April to December of 2011, when the equity markets fell 19.4%. At this point, the definitions are irrelevant. The fact is the markets are down and so are our accounts.
The dizzying volatility over the past few weeks has left all of our heads spinning as we wait for containment efforts in the United States and elsewhere to help slow new cases of COVID-19 (coronavirus). Public health is of course our primary concern. But beyond that, from an economic and market perspective, there are many difficult but important questions: