Craig Birk, Chief Investment Officer at Personal Capital, recaps the major market-moving events of the past month.
Markets Rally Despite Rising COVID-19 Cases
Stocks continued to march back toward even for the year, even as COVID-19 infections began rapidly accelerating in many states. It is unclear how local and state governments will react. Re-opening measures will likely decelerate or partially reverse, but there seems to be little collective or political will to revert to the most restrictive shutdown rules. This could change if deaths reaccelerate at a similar pace as we are seeing with cases now.
There are some encouraging trends. Areas that peaked in early spring, such as New York, New Jersey, Northern Italy, and Spain continue to see declining case counts and especially deaths. While this does not rule out further spikes in these areas, it allows for optimism that there is a pattern and a behavioral path where the ultimate infection rates could be lower than initially predicted.
New Jobs Added in June, But Are We Seeing COVID-19’s Full Impact Yet?
On the job front, news continues to be encouraging, though does not yet reflect the possible impact from recent increasing virus spread. The US economy added a stronger than expected 4.8 million jobs in June, bringing official unemployment back down to 11.1%. This was almost unimaginable at the start of the year but is also significantly better than most predictions from around the start of Q2.
Markets Continue to Climb Despite Changing Political Tide
On the election front, Joe Biden passed Donald Trump as the favorite during June. While we urge investors not to let politics influence strategy in general, we found it encouraging that markets did not react strongly to shifting political tides. After taking a break in May, the momentum trade favoring the very biggest tech stocks, and growth stocks over value in general, resumed in June. In our view, momentum driven approaches are currently bidding up large growth stocks with little regard for price, simultaneously creating a void in demand for small and value stocks. When this wll end, we do not know. But we feel strongly that maintaining significant exposure to areas outside of the hottest parts of the market is increasingly critical.
Our Take
The first half of this year reinforced the benefits of a personalized strategy designed to be maintained through economic and news cycles. We believe avoiding market timing, staying diversified, and being disciplined about controlling what can be controlled puts our clients in the best position for long-term success. This is true in general and is proving to be especially so through the COVID-19 period.
