Sentiment stumbles on second wave

Mike Loewengart, Managing Director of Investment Strategy

E*TRADE Capital Management


After cheering reopening progress at the outset of the month, investors took a breath as coronavirus outbreaks in several states threatened the economic recovery.

There is a fair amount of data that suggests the US economy is on the mend: The latest retail sales, consumer spending, durable goods orders, and personal income readings have all trounced analyst expectations. But there is likely still a long road ahead. To quote Fed Chair Jerome Powell, “the levels of output and employment remain far below their pre-pandemic levels, and significant uncertainty remains about the timing and strength of the recovery.”1 Translation: We’ve come a long way from the bottom, but we’re not yet near the top.

So, after an 11-week rally in which the S&P 500® climbed nearly 45%, the approximately 25 trillion-dollar-question remains: Will a new wave of infections derail the economic recovery and market rebound?

US equities

Stocks ended slightly up after a strong showing at month-end, erasing their steepest pullback since March which sent the S&P 500 tumbling nearly 6% on June 11. The index wrapped up June with its best quarterly performance since 1998, gaining 20.5%.

The Nasdaq Composite pushed its year-to-date return into double digits, driven by tech’s continued resilience in the stay-at-home era, hitting multiple record highs throughout the month.

June 2020 US equity performance

FactSet Research Systems

While tech continued to lead the charge, discretionary stocks picked up steam as recent economic data showed at least some consumers may be ready to leave the house and open their wallets. Energy was one of the weakest sectors for the month despite strong gains for crude oil, highlighting how conflicting some milestones during the recovery can be.

June 2020 sector performance

FactSet Research Systems

International equities

International equities put up strong numbers, with emerging markets leading developed markets for the entire month. Asian markets helped drive gains amid signs of economic growth in China.2 Latin America also posted strong returns, as demand rebounded and commodity prices picked up.

June 2020 international equity performance

FactSet Research Systems

Fixed income

Fixed income performance showed investor preference for riskier assets, with corporate bonds leading as investors searched for returns in a near-zero rate environment that appears to be here for the long haul. The Fed has committed to keeping short-term rates at the current level through 2022 and pledged to support the economy by doing “whatever it takes”—including backing the corporate bond market by buying up billions in corporate debt. A pretty clear outlook in an otherwise cloudy forecast for financial markets.

The yield curve flattened slightly toward month-end as investors moved into safe haven and defensive assets. Performance for Treasuries was flat to slightly positive, with the longest maturities performing the best.

US Treasury yield curve, June 30, 2020

FactSet Research Systems

Looking ahead

With the first half of the year on the books, the focus will turn to whether the economy can continue to make progress or if another round of shutdowns will derail the jobs rebound, thwart consumer spending, and upend the stock market.

While recent data has shown a record bounce back in several pockets of the economy, numbers are likely to be more muted in the coming months, and with the federal government’s additional unemployment assistance set to the expire at the end of July, the early boosts to consumer spending and retail sales may be the first to dwindle.

Here are some things to think about in the weeks ahead:

  • Gauging the recovery: In addition to traditional economic data, many market watchers are looking to unconventional metrics for trends that may help track reopening progress (e.g., directions requests, air traffic, restaurant reservations, hotel occupancy). Second-quarter earnings, which kick off this month, may also help clarify on how companies expect the balance of the year to go. 
  • The economy vs. the market: While the stock market has recouped much of its losses from the first half of the year, it’s important to keep in mind that the market is not the economy. Financial markets tend to be forward looking, reflecting what the future may hold. The economy today, however, is far from fully recovered.
  • The case for diversification: Some analysts argue that a near-zero rate environment coupled with a stock market facing unprecedented uncertainty makes a case against the traditional 60% stocks/40% bonds investing strategy. But the key to reducing portfolio volatility is blending a mix of uncorrelated assets classes, and for investors with stocks in the S&P 500, diversifying with highly rated bonds may be prudent.

As we saw last month, there will be bumps along the way to full economic recovery. Remember to stay the course and keep investing decisions focused on individual timelines, long-term goals, and risk tolerance.

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


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  1. MarketWatch, “Powell says economic activity far below pre-pandemic levels despite ‘modest rebound’ in some areas,” 6/17/20,
  2. The Wall Street Journal, “China’s Economic Recovery Picks Up Further Momentum,” 6/30/20,
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 Advisor, 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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