Economic Update — Reviewing Q3 2020
The bull market raged on in the third quarter of 2020, continuing the second quarter rally.
Despite the Covid-19 pandemic keeping a tight grip on the global economy, the S&P 500 and Dow gained 8.9% and 8.2% respectively, while big tech drove the Nasdaq Composite up 11.2% in Q3 on a total return basis. Even as markets have gained so far; the looming election, lack of fiscal stimulus out of Washington, and seemingly never-ending pandemic have led many to expect market volatility through the end of the year.
Now more than ever, keeping abreast with the latest market trends and economic data is crucial to successfully managing an investment portfolio and educating clients.
Below are a few takeaways from the YCharts Q3 2020 Economic Update. The deck, published quarterly, arms advisors and investors with the insights they need to digest the previous quarter, and make smarter investment decisions going forward. Furthermore, the deck is built in presentation format, so you can easily leverage it in client communications.
Asset Class Performance
Every asset class in the table below posted positive gains in the third quarter, as was the case in Q2. Looking at the third column in the table below, Emerging Markets returned a respectable 9.7% in Q3, while US Growth led the charge at 13.2%.
Notably, US Treasuries posted the second best year-to-date (YTD) returns. That said, Treasuries have lost steam as yields were pushed to historical lows, and little room for further price appreciation remains. For those who bought the dip in commodities, Q3 may have provided some hope as the asset class picked up 4.6% in the quarter.
“Nike Swoosh,” “U-shaped,” “V-shaped” — we’ve all heard the talk over what type of recovery the US is experiencing since the pandemic-induced recession. The chart below illustrates the quick recovery in the stock market. But what about other areas of the economy?
While housing and personal income have remained steady throughout the economic dip, both are worth keeping an eye on going forward. Certainly lagging in their pace of recovery, jobs numbers and GDP have been limping back towards their highs from earlier in 2020.
Yield Curve Normalization
Investors can breathe a sigh of relief as the yield curve fully reversed its inversion for the first time in over a year — meaning that as treasury bonds’ maturity increases, yields increase as well. As seen below, the shorter end of the curve was significantly inverted a year ago.
Recently, the curve began to steepen as short-term rates decreased substantially, while rates longer out the curve edged upwards. Overall, rates remain very low on a historical basis. As the Fed has indicated rates will remain near zero for the foreseeable future, many expect the short end of the curve to remain around current levels. We will be keeping an eye on longer-dated maturities, and how investors are gauging inflation expectations.
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