Market Perspective 05/22/2020

There are no certainties in how the financial markets will perform in any given year. Regardless of background conditions: market valuations, presidential election years, or who won the Super Bowl, the performance of the market in any given year can vary dramatically. Since 1926, the US stock market (S&P 500) has delivered an average annual return of around ten percent. But short-term results may vary and often do. In any given period stock returns can be positive, negative, or flat. In fact, only during six of the past 94 calendar years has the market delivered close to the average return; an indication of how much the results can vary from year to year. 

Specific to presidential election years, candidates will commonly do whatever is possible to position their campaigns for election or re-election. History tells us that 80 percent of sitting presidents get re-elected with only three one-term presidents since World War II. As we approach the peak of this election cycle, we will continue to navigate the COVID-19 pandemic and the resulting economic slowdown. We hope that despite political divisions, all parties involved will continue to prioritize overcoming this pandemic.

Financial markets dislike uncertainty. Federal Reserve Chairman Powell commented last week that more financial support would be needed to prevent a wave of bankruptcies and prolonged joblessness. Stock market volatility ensued. This week saw positive news on a potential vaccine in which markets responded to favorably. The seesaw of coronavirus developments will likely drive market reactions for the foreseeable future. Volatility is going to be with us for a while.

Market Comments

• The stock market started strong this week on news of a potential vaccine

  • Infectious disease expert, Dr. Antony Fauci, expressed excitement over progress and expects an original prediction of a vaccine within 12-18 months to remain intact adding that any timeline is “never a promise”

• The Federal Reserve started purchases of corporate bond exchange-traded funds last week

  • While only buying a small percent of the overall bond market, this unprecedented move is aimed at increasing confidence in the financial market

• As of April 30, $11.4 trillion of bonds across the globe were priced at negative yields with the vast majority being European and Japanese government bonds (source: JP Morgan Guide to the Markets)

  • Although $11.4 trillion is a significant amount, it is lower than the peak of negative-yielding bonds in mid-2019

  • Interest rates remain low worldwide which we believe requires a more selective approach to investing in bonds