Tranel Talks Column

Market Status Update – 7/6/20

Hi everybody this is Jordan Bradford with The Tranel Financial Group. I hope you had a great 4th of July weekend.

I wanted to give you all an update here because month end and quarterly end statements should be coming to you very soon. I wanted to share an update on what’s happened in the market so far this year. I’m going to touch on some big picture overview stuff. I wanted to give you guys a little sense of what’s been happening in the market.

In the first quarter we saw one of the steepest declines in terms of the high point in the market to the low point, that we’ve seen in many, many years. It was a really volatile first quarter as it finished down about 20-25%. The second quarter in the market, so the last three months, we’ve really seen a complete turnaround. In fact, the S&P 500 posted a 20.5% return in the second quarter. Which is its best quarterly return since 1988. So if you’re keeping track, that is 32 year it has been since we’ve had a quarter as good as the second quarter in 2020 for the S&P 500. The Dow Jones has been very similar as it posted its best return since 1987.

The main question I’ve been getting here is “What’s causing all this? Why are we seeing all this volatility? The big market drop in the first quarter followed by such a strong second quarter.”

Well a lot of it has truly been driven by growth stocks in the market. The technology sector and consumer discretionary sectors are leading the way by a large margin at this point. With the technology sector really pulling a lot of the weight in the S&P 500 and, of course, the NASDAQ as well which is really a tech-based index.

To give you a sense of where everything is at right now, we saw a really good week last week (which was the end of June, first few days of July). The Dow Jones finished last week down 8.3% year to date. So that’s January 1st through the end of last week. The S&P 500, though, finished down only 2.1% year to date. So there’s definitely a discrepancy there, and I’ll get into more details in just a second.

I think what will really lead into that is how the NASDAQ has performed. As I mentioned, the NASDAQ is really the tech-based index that we follow to get an idea of what growth companies are doing in the US market. And the NASDAQ is actually positive 14.4% year to date. So that explains the big discretion between the S&P 500 index and the Dow Jones. Because the Dow Jones is only 30 individual companies, we don’t get a broad market response to the results in the Dow Jones index versus what’s happening in the S&P 500. The S&P 500 is the 500 largest companies so we’re getting a much better sense of what the true economy is doing. It’s still down, the market is still down in the S&P, but we’re seeing those tech companies lead the way. Companies like Netflix, Apple, Amazon, Google, they have really outperformed what I would say is the expectation given where we’re at in the market right now.

There’s still a lot to be concerned about with the continuous Coronavirus cases that we’re seeing and just other issues we’re going to see from the economy going for the rest of this year. Unemployment still does remain above 10% and I think that’s probably going to maintain in that range here through the end of the year as we really start to grasp as a country how impactful this virus is going to continue to be. Now, I think that one area where the market is really showing a lot of signs of positive growth is in expectations. Really a lot of analysts have reduced their expectations for the second half of the year. So leading into the third quarter and going into the fourth quarter later on in the year, I really do expect that earnings marks will likely not be missed by as much as they were maybe in the first quarter because analysts have lowered their expectations a little bit.

We’re still spending a lot of money as a country so that is one good sign, but spending is down overall. That’s certainly causing some volatility in the market. While we’re absolutely not at the end of the virus and we have a long way to go with that, and it’s still going to be lingering over the markets, but I think that everyone can breathe a sigh of relief as we look back over the last six months and say, “Gosh for the S&P 500 to only be down 2.1% is actually a pretty big win for the whole market and the US economy.” Things could have certainly been much worse, but through all the different programs like the CARES Act and additional things companies are doing to innovate and change the way they do business, like working remotely, is certainly having a positive impact on the market.

Just wanted to give you guys a sense of where things are at today, but you should be much, much more pleased to open up your account statements at the end of June than you were at the end of March.

Keep doing what you’re doing. Keep safe. If you have any questions, please feel free to reach out to us. You can contact us at 847-680-9050. Thanks!