Market Update – Stock Market Recovery and Outlook

August 10th, 2020 by Jonathan Chatfield, CFA

Against the backdrop of an economic pullback, resulting from the Covid-19 related business shutdown, the stock market has staged an impressive recovery from its March lows. After peaking February 19 above 3386, the S&P 500 declined more than 33%, hitting a low near 2237 on March 23. As investor confidence returned, the market steadily rose, rebounding more than 48% and reaching 3327 (through August 5).

Meanwhile, the U.S. economy posted a sharp decline, with the unemployment rate rising above 14%, before declining to its current level of 10.2% (July 2020). This followed a rate of 3.5% measured in February — the lowest since 1969. The country’s total economic output, or GDP, dropped 32.9% in the second quarter as consumer spending dropped 34% in response to layoffs and business closures across the country.

What does this mean for your investments?

As stock prices have risen, we have taken the opportunity to reduce positions in selected stocks and equity ETFs. We are concerned that the market has risen rapidly and doesn’t reflect the risk of a longer-term economic slowdown due do the ongoing Covid 19 crisis. We believe it is prudent to reduce equity exposure in this environment, and have sold or reduced selected positions to reduce market risk.