The Undeniable Reasons for Continued Concern Among Investors

Q2 ends with a market rebound, resurgent pandemic & massive push for societal change

As so much of 2020 has to this point, June brought wildly disparate data, possible bright spots in the markets and the economy, and undeniable reasons for continued concern among investors.

Viewed purely through the lens of data, June put a fascinating endpoint on the first half of the year for the markets, as the S&P 500 was not that much changed from where it started the year. It was a wild ride to get there, however, including a 35% drop from the February high and a 44% bounce off the bottom.

An upbeat jobs report for May helped drive a rally early in the month that saw the S&P go positive for the year while the Nasdaq closed in on an all-time high. The gain of 2.5 million jobs, more than expected, lifted the S&P by about 1.2% on the day. Unemployment fell from a post-World War II high of 14.7% in April to 13.3% in May. In any other context, these are still shocking and sobering figures, but the market rallied on the news, with the major averages all up around 3%. At the same time, the Federal Reserve continued to pump liquidity into the market through its corporate bond buying program, driving prices up and yields down.

Many states that began to ease their respective lockdowns in May continued to do so into June, and in various parts of the country people seemed eager to flock back to beaches, pools, parks and restaurants, which brought its own concerns. Pent-up demand drove a record jump in May retail sales, up 17.7%, double what many forecasters had predicted, and another of those shocking numbers which, were you to show them to someone a year ago with no context, would elicit all manner of questions and concern. The Institute for Supply Management (ISM) Manufacturing Index rose to 52.6 in June, indicating a return to growth for the sector. These better than expected numbers renewed optimism that a “v-shaped” recovery was still possible.

But the volatility that has been the market’s defining characteristic throughout the pandemic continued to make its presence felt. In the month’s last week, there was a resurgence in COVID-19 cases, particularly in the south, southwest and parts of California, and markets tumbled, falling 2.6% on June 26th as concerns mounted that states would have to resume their lockdowns. New daily cases hit a record, topping 40,000 near month-end on their way to 50,000. Once again, though, the market’s decline was short-lived. Positive data on pending home sales, showing an increase of more than 44%, powered a new advance and erased losses in the S&P 500 for the month.

There was easily 12 months of market news packed into the year’s first half: the end of the longest economic expansion on record, the shortest bear market in history, and a Depression-like contraction in the economy. There was also perhaps a decade’s-worth of societal news packed into the first six months of this year, as the country’s social fabric has been altered during the pandemic and ensuing lockdowns, and as we as a nation are hopefully moving towards meaningful discussions about race and justice. Economic data may have been moving in a positive direction by the end of June, but our larger societal issues will need more than a few positive jobs reports to cure what ails.

But we are optimistic that the economy, supported by massive fiscal and monetary stimulus, is generally on the right track, barring any sudden surprises. New worries are always on the horizon – the presidential election for one. While the huge spikes off the bottom are unlikely to be repeated, we are hopeful that the data will continue to improve, albeit in a more gradual but sustainable way. But for good or ill, it seems unlikely that the year will get any less interesting as it rolls along.

Related: The Disconnect Between the Stock Market and the Economy