Global stocks gained in Q3 as investors balanced several evolving storylines. Covid-19 continued to wreak havoc on lives and businesses. However, as it relates to long-term earnings expectations for public companies, comfort with the virus grew. Low interest rates continued to support high equity valuations and home prices.
High momentum technology stocks enjoyed a euphoric and persistent rally during July and August, luring many retail investors to pile in. The segment then suffered a short but sharp correction in early September. The retreat served as a reminder to many that uncertainty exists in every sector and the most popular stocks can quickly become the most volatile.
We believe August marked a tipping point with respect to sentiment, where fear of missing out pulled decisively ahead of fear itself. It is easier for markets to climb when expectations are low, so we believe sentiment as an indicator shifted from a positive to a negative during the quarter.
Despite this expansion of feelings of greed, there were also many who were fearful of the election. Meanwhile, almost no one expected the election to result in a rally, suggesting to us the odds favored gains when clarity emerged.
Personal Capital Managed Portfolios: In July and August, mega-cap technology stocks rallied sharply, creating challenging comparisons for more diversified approaches. That trend sharply reversed in September, allowing most Personal Capital portfolios to modestly outperform their respective benchmarks during the last month of the quarter. Emerging markets and international small cap stocks outpaced domestic stocks, providing a tailwind to portfolio returns. Most portfolios with taxable accounts experienced meaningful loss harvesting through the quarter.
This communication is for informational purposes only and does not constitute a recommendation to buy or sell securities nor does it reflect performance or investment outlook of aggregated accounts managed by a third party. Past performance is not a guarantee of future return or indicative of future performance. Investing involves risk. Commentary about Personal Capital Managed Portfolios applies solely to Personal Capital Advisors investment client portfolios. Actions taken in, or performance returns of, your portfolio may differ from the general commentary provided.