Q3 2020 Stock Market Update
Key Summary: From peak to trough, we saw a 34% drop in the S&P500 during the first 6 months of 2020. While many investors believe the stock market to be in dismal shape, we've actually seen a historic rebound. In fact, we've actually seen a historic rebound where the S&P 500 is only down 3.1% (as of June 30th) despite the volatility surrounding the Coronavirus.
While the U.S. has put approximately 12% of its GDP towards fiscal stimulus programs, we've seen similar fiscal efforts on a global scale as well. Some developed countries such as Italy and Germany have put forth as much as 34% of their respective GDPs into fiscal efforts to aid in the economic recovery needed from COVID-19.
Fixed income is 2020's high-performer so far, and, while it's important to avoid chasing what's run recently, it's also important to understand what causes shifts among asset sub-classes. One of the sub-classes we believe is attractive right now is spread fixed income. With continued concerns over defaults brought on by the pandemic, the fixed income spreads for securities have become quite attractive for long-term investors. Yields on Corporates have reached 2.15%, Convertibles are at 6.83%, and High-Yields have already seen returns of over 3% in just 3 months.
Alternatively, we believe holding onto cash is no longer the attractive option it was at the beginning of 2020. In recent months, we've seen a rise in inflation given our ongoing trade war concerns with China, demand for travel decreasing due to Coronavirus, and the cost of domestic goods and services decreasing as well. While we believe cash holds an important place in a portfolio, it's important to be diversified as it can be dangerous to hold too much cash, especially in a high-inflation environment where you're not making any money on it.
Long-Term Investment Strategy
Lastly, more investors than ever are opening brokerage accounts with hopes of cashing in on the opportunities presented by COVID-19. Four to five times as many investors opened these accounts in the first four months of 2020 as compared to 2019, many of whom are trying to time the market and invest in the big names at a discount. We believe the best long-term investment strategy is to stay diversified and stick to the asset allocation strategy that fits to get you to your long-term goals.
If you have questions regarding the webinar or your current portfolio, let us know and we'll have one of our advisors get in touch.
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Nick Johnson, CFA®, CFP®
President & Wealth Manager
Willis Johnson & Associates is a registered investment advisor. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein. Corporate benefits may change at any point in time. Be sure to consult with human resources and review Summary Plan Description(s) before implementing any strategy discussed herein. Willis Johnson & Associates is not a CPA firm.