Economic Update — Reviewing Q2 2020
The first quarter of 2020 was one of the worst on record for the US stock market, but the second quarter proved to be one of the best.
In Q2, the S&P 500 was up 20.5%, the Dow climbed 18.5%, and Nasdaq Composite gained a staggering 30.9% on a total return basis. After the market’s initial crash spanning February and March, most were not counting on the “V-shaped” recovery coming to fruition; however, on the backs of government stimulus and vaccine breakthroughs, equities have climbed back quickly and the Nasdaq has even set a few new record highs.
It can be dizzying, but in the midst of a global pandemic and US recession, taking note of the latest trends and economic data is vital to successful investing.
Below is a selection of insights from YCharts’ Q2 2020 Economic Summary Deck. The presentation, published quarterly, arms advisors and investors with the data and insights they need to digest the last quarter of action and make smarter investment decisions looking forward. YCharts users can find the full deck in the Support Center.
If you’re looking for even more insights, join us for our upcoming webinar, during which we’ll review the deck in full: Breaking Down Our Q2 2020 Econ Deck: Can The Market Rally Continue?
Quarterly Asset Class Performance
For the first time since Q1 2019, all eleven asset classes in the table below posted positive quarterly returns. In Q2 2020, US Growth led the charge with nearly 28% growth and was followed by US Small Caps’ 25% climb—good news for those who bet on domestic equities after the stock market bottomed-out in March 2020.
As seen in the table, the variability of returns from one quarter to the next supports the argument for diversification. While growth stocks have dominated as of late, Emerging Markets, Real Estate and US Treasuries have each been the best performing asset class in a given quarter over the last year.
The Employment Situation
2020 has been a volatile year for the most commonly followed employment data. The chart below shows how major indicators spiked sharply up or down during the onset of COVID-19, but most have whiplashed back since cases have slowed in most parts of the country.
The second series on the chart, US U-6 Unemployment Rate, includes “under-employed” persons as well as the unemployed, and indicates that a large number of people are back to work but are earning less than they would if at full employment.
Also in the chart above is Initial Claims for Unemployment Insurance. While much lower now than they were a few months ago, more than 1 million Americans have filed for benefits in each of the last 17 weeks straight. As Congress attempts to reach an agreement on extending additional benefits for the unemployed, Initial and Continued Claims will be important figures to watch, reported each Thursday morning.
Retail Sales Bounce Back
The US consumer has proved that, even from the couch, they are a force to be reckoned with.
The latest retail sales data indicates that people are still shopping after the brief hiatus in activity between March and May. Retail sales reported in June 2020 were the highest ever on record as Americans resumed large purchases like home goods and automobiles.
The S&P vs. GDP
The chart below shows the S&P 500 Total Return and US Monthly Gross Domestic Product (GDP) to represent the US stock market and economy, respectively.
Comparing the recessions shaded in gray, the movement in both GDP and the S&P 500 during the current recession is markedly more dramatic than the previous two economic downturns. While the “V-shaped” recovery that seems to be occuring in the stock market is yet to be seen with regard to GDP.
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