Global equity markets continued their rebound from the dismal first quarter of 2020 and by the time the second quarter closed, the major U.S. indices had marched to record quarterly gains, including:
It should be noted that the second quarter rally came after a dismal first quarter and the contrast between the two quarters is dramatic, as the first quarter saw:
Despite the barrage of negative economic news in the second quarter, Wall Street was optimistic as the economy gradually reopened for business.
After devastating losses to markets around the world in March, big rebounds in April, and modest gains in May, June brought gains for most global investors. In fact, of the 37 developed markets tracked by MSCI, most were positive in June, with a few exceptions: Norway, Japan and Israel.
|Index Returns||Q2 2020|
|US S&P 500||19.9%|
|MSCI Emerging Markets||18.2%|
|MSCI Asia ex-Japan||16.8%|
|MSCI Europe ex-UK||15.1%|
|UK FTSE All-Share||10.2%|
Source: MSCI. Past performance cannot guarantee future results
For the second quarter, however, every single one of the 35 MSCI regional indices and 37 country indices were positive. And the best regional performer for the quarter went to the MSCI North America Index – which includes large- and mid-cap stocks from the U.S. and Canada. Australia and New Zealand took the honors for best country performance for the quarter, with returns of 28.61% and 27.97%, respectively.
While the first quarter of 2020 was pockmarked with unprecedented and immediate stoppage of economic activity as businesses shut down and people stayed at home, every month of the second quarter of 2020 saw businesses slowly start to reopen, albeit not as fast as they shut down.
Accordingly, the second quarter was really a tale of two data sets, as the country was besieged by negative (and backwards-facing) economic data while Wall Street marched forward to record-setting performance numbers.
Take just the last two weeks in the quarter, for example. It seemed that for every piece of negative economic news, investors received some surprising economic news as well, including:
The first quarter of 2020 was difficult for almost all investors and the second quarter was almost the complete opposite, with most of the major asset classes and styles turning in very respectable – and most importantly green – numbers across the board.
For the quarter, Growth names and Small Caps came roaring back and far outpaced the others, while Growth continued its dominance versus Value and extended its YTD differences by about 22%. Interestingly enough, Emerging Markets turned in a terrific quarter.
The overall trend for sector performance since the end of the first quarter has been mixed, as performance leaders and laggards have rotated all year. Focusing on the end of the first quarter, for example, investors saw that every single one of the 11 S&P 500 sectors turned in negative numbers, whereas April saw all of them positive and May saw most of them positive.
The month of June, on the other hand, saw more than half of them painted red and less than half of them painted green.
Reviewing the sector returns for the second quarter and YTD through June 30, 2020, we saw that:
Here are the sector returns for shorter time periods: [sector returns]
When the final bell rang at 4 pm EST on Tuesday, June 30th, Wall Street rejoiced in the fact that the major U.S. stock market indices had turned in three straight positive months, leading to record quarterly gains. And it was true, the major U.S. indices did turn in record quarterly gains, with the DJIA recording its best quarter since the first quarter of 1987; the S&P 500 recording its best quarter since the fourth quarter of 1998, and NASDAQ recording its best quarter since the fourth quarter of 1999.
Within hours of markets closing the books on the second quarter, the media piled on too, with headlines like:
While investors are no doubt thankful for the second quarter’s performance, it’s important to keep these “performance records” in perspective, however.
Consider this example:
Does the 40% feel record-setting to you? Maybe not.