No summer slump in the markets

Mike Loewengart, Managing Director of Investment Strategy

E*TRADE Capital Management


It may be peak vacation season, but there has been no shortage of market activity lately.

Investors had a lot to digest: A record gain in jobs to start the month, a stream of Q2 earnings results largely topping expectations, and progress on the vaccine front—all amid a backdrop of rising COVID-19 metrics in some states, particularly in the South and West.

The Fed closed out July with a review of its monetary policy, announcing it would hold interest rates near zero until the economy was well past the worst of the health crisis. It also sounded a note of caution: While economic activity has picked up since the worst of the downturn, there are signs that the recovery may be stalling.

US equities

The stock market posted solid gains, with all the major US indexes higher on the month. The S&P 500® got back in the black year-to-date while the Nasdaq Composite extended its annual gains to 20%.

July 2020 US equity performance

FactSet Research Systems

Sector performance was a mixed bag as Q2 earnings season got underway. With more than half of companies in the S&P 500 reporting, earnings were down roughly 36%.1 And although results have generally outperformed expectations, the bar wasn’t exactly high.

July 2020 sector performance

FactSet Research Systems

International equities

International equities also posted a solid performance, and emerging markets were the month’s biggest winner. A weakening US dollar has been a positive for international stocks, since a weaker dollar means (at least some) other currencies are stronger, boosting the value of stocks that are traded in those foreign currencies. Latin America posted strong returns, following a solid second quarter, as demand continued to rebound and commodity prices picked up.

July 2020 international equity performance

FactSet Research Systems

Fixed income

It was a fairly strong month across the entire bond market as well. Longer-term Treasuries and corporate high-yield bonds were the best performers. High-yield bonds moved into positive territory for the year after a double-digit loss in the first quarter.

Treasury yields fell, especially those with longer maturities, resulting in a flattening of the yield curve. The yield on the 10-year Treasury ended at 0.55%, close to its all-time low of 0.54%.  

One thing to keep in mind: Even though their income generation may be limited because of record-low interest rates, in an environment tinged with uncertainty, bonds can still play a valuable role in reducing the risk of stock holdings.

US Treasury yield curve, July 31, 2020

FactSet Research Systems

Looking ahead

While gains across stocks, bonds, and commodities showed the breadth of the market recovery since March, a weakening US dollar and gold’s rally to record highs highlight potential investor concerns about inflation and an economic slowdown—especially after the first reading of Q2 GDP showed the steepest drop in activity in US history.2

Here are some themes that may come front and center in the weeks ahead:

  • Signs of a stumble: With the path of recovery largely contingent on the course of the virus, market watchers will be looking to economic data like the next employment report (due out August 7) for cracks in the labor market. The latest jobless claims showed an uptick in both new and continuing claims for the first time since March, indicating job gains in May and June may be fading amid the resurgence of infections and reclosures.
  • A broader universe of stocks: There’s been a lot of hype around some key players that have prevailed in the COVID economy, but these stocks can’t rise indefinitely. A diversified mix of equities, including international and value stocks, may help investors spread risk and reward potential across their portfolios. 
  • The presidential election: If history is our guide, the best way to play the upcoming election is to simply drown it out. While the results may stir up shorter-term volatility, historically, there’s no clear indication that either parties’ policies move markets one way or the other over longer time periods.

Remember the path toward recovery is a marathon—not a sprint. Keep decisions mapped to individual timelines, long-term goals, and risk tolerance.

Thanks for reading. We’ll talk to you again next month.

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  1. FactSet Research Systems, as of July 31, 2020.
  2. CNBC, “Second-quarter GDP plunged by worst-ever 32.9% amid virus-induced shutdown,” 7/30/20,
Mike Loewengart
Managing Director, Investment Strategy, E*TRADE Capital Management, LLC

Mike Loewengart is the Managing Director of Investment Strategy for E*TRADE Capital Management, LLC. Mike is responsible for the asset allocation and investment vehicle selections used in E*TRADE’s advisory platforms. Prior to joining E*TRADE in 2007, Mike was the Director of Investment Management for a large multinational asset management company, where he oversaw corporate pension plan assets. Early in his career, Mike was a research analyst focusing on investment manager due diligence for the consulting divisions of several high-profile investment firms. Mike holds series 7, 24, and 66 designations, as well as the Chartered Alternative Investment Analyst (CAIA) designation. He is a graduate of Middlebury College with a degree in economics.

Andrew Cohen, CFA
Senior Director, Investment Strategy, E*TRADE Capital Management, LLC

Andrew Cohen is the Senior Director of Investment Strategy for E*TRADE Capital Management, LLC. Prior to joining E*TRADE, Andrew was the Director of Investments and Operations for a large Registered Investment Adviser, where his responsibilities included investment manager research, asset allocation, and portfolio construction. Previously, he was a Senior Research Analyst and Team Leader for a leading wealth management platform. He is a CFA® charterholder and a member of both the New York Society of Security Analysts and CFA Institute. He is a graduate of Virginia Tech with a BS in finance.

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