2020 | 3rd Quarter
Both the stock and bond markets continued their recovery from the effects of the global Covid-19 pandemic in the third quarter. Despite a late September swoon, the S&P 500 returned almost 9% during the quarter as economic activity continued to accelerate as businesses emerged from lockdowns and the effects of the nearly $7 trillion in stimulus programs put in place by the Federal Reserve and the Federal government provided support to securities markets. Another factor was the resiliency in profits by U.S. corporations despite the disruptions caused by the pandemic. While profits have been down for most companies, they have not suffered as much as initially feared. Also, some areas, particularly technology and e-commerce have seen profits rise as a result of changing consumer and business behavior in response to the pandemic. There has also been continued optimism regarding the development of a vaccine and effective treatments for Covid-19. In summary, while many concerns remain at this point, markets have taken a positive outlook that things will continue to improve through this year and into 2021.
Except for the energy sector, all sectors of the market were up for the quarter. Unlike the first half of the year, Technology was not the leading sector even though it posted positive returns. Consumer Discretionary, Materials and Industrials all posted strong returns as the economy recovered and investors gained confidence that more cyclical areas of the stock market would benefit. Energy continued to be a laggard as over-supply and decreased demand kept prices low. Small and Mid-cap stocks also posted positive returns on hopes of continued improvement in recovery from the pandemic but remain in negative territory for the year.
Bonds produced positive returns for the quarter, but yields remain at near record lows for most high-quality debt instruments. Some of the riskier areas of the junk bond market and lower grade corporate debt had the best performance in the quarter as investors gained confidence in an improving economy. The Fed has indicated that they will keep interest rates near zero for at least the next couple of years. While this is stimulative for the economy and enhances the value of other assets such as equities and real estate, bond yields at these levels remain unattractive for long-term investors. For this reason, we continue to have most portfolios allocated more heavily to equities.
The first three quarters of 2020 represented the epitome of uncertainty. And while we expect economic conditions to continue to improve, the fourth quarter promises to be just as unpredictable. The elections in November may result in change of control of the White House, Senate and less likely the House of Representatives, but any change and uncertainty about future policy will trigger disruption in the markets and volatility. Potential fiscal stimulus could represent a much-needed shot in the arm for the economy or stifle consumer spending for the rest of the year.
In this sea of uncertainty, one constant remains, companies with strong balance sheets, a proven ability to grow, leadership and superior product offerings will endure uncertain times. We will continue to apply our tried and tested investment discipline that has served our clients through many other unpredictable times.
As always, please call with any questions.
Jonathan F. Kolle, CFA
President
Joseph K. Champness
Managing Director
Shawn R. Keane, CFP®
Vice-President
Rusty Giles
Director of Marketing
The foregoing content reflects the opinions of Smithbridge Asset Management and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct.
Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns.
Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful or that markets will act as they have in the past.