3rd Quarter Market Commentary
by Steve Conard, CFP®
We all agree that 2020 has been weird by any standard, and the financial markets are no exception. Having shed 34% of its value in 33 days as COVID-19 arrived in the US, who would dare to dream that the S&P 500 index would finish out the third quarter up 3.24% year-to-date – after falling 4.71% in September. The index rallied an incredible 57.62% off the March 23rd low before beginning to retreat on September 2nd. The technology-heavy Nasdaq Composite Index performance is even more impressive, finishing the 3rd quarter up 23.55% year-to-date.
The third quarter market pattern was a familiar one, with the ‘Big 5’ tech stocks (Facebook, Apple, Amazon, Microsoft, Google) pulling the index higher even as many industries continued to tread water amid the COVID-19 induced economic slowdown. The Nasdaq Composite gained 10.20% while the S&P 500 (up 7.59%) and Dow Jones Industrial Average (up 6.35%) continued to lag behind. International equity markets enjoyed a solid quarter, with the MSCI EAFE Index of developed markets gaining 4.20% and the MSCI Emerging Markets Index adding 9.56%.
Meanwhile, the US bond market remains on life support from Federal Reserve bond-buying programs, which have helped prices while pushing yields down near historical record lows. The Bloomberg Barclays US Aggregate Bond index gained 0.73% in the third quarter, while lending money to Uncle Sam on a 10-year US Treasury Note would earn you a not-so-generous fixed interest rate of 0.70% annually.
Until the economy can be fully unleashed from the ongoing impact of COVID-19, whether via successful development of vaccines or other means, we remain wary of stock market valuations. S&P 500 stocks have not been this expensive relative to corporate profits since the dot.com bubble in 1999 – and we know how badly that ended. A dovish Federal Reserve can only do so much, and Wall Street is losing patience with Congress to pass another round of fiscal stimulus as the economic rebound shows signs of stalling. Wall Street also will not be giving CEOs a pass on third quarter earnings as it did for quarter two; with earnings reporting season kicking off just two weeks ahead of the highly uncertain election, there is elevated potential for market volatility in the coming quarter.
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Past performance is no assurance of future results. Compass Financial Services (“Compass”) is a registered investment adviser with its principal place of business in the State of Iowa. Opinions expressed are those of Compass and are subject to change, not guaranteed and should not be considered recommendations to buy or sell any security. The data was obtained from third parties deemed by the adviser to be reliable. Nonetheless, the adviser has not verified the results and cannot be assured of their accuracy. All indices are unmanaged and may not be invested in directly.