There is a massive amount of information to process these days. Every time you turn on the TV or scroll through Twitter, ‘experts’ from various industries are reporting new information we must process. At Canyon Oak Financial, our goal with this newsletter is to consolidate the relevant highlights from quarter 2 and provide some context for how they could impact your life and financial situation. So, let’s recap what happened in Q2 2020:
At the end of Q1 (March 2020), historic stimulus was enacted in hopes of keeping the American economy afloat while we weathered the COVID-19 pandemic. This federal stimulus played a key role in a Q2 economic rebound that was bigger than expected. However, economic activity remains far below levels of a year ago. As we move into Q3, Paycheck Protection Program loans may no longer be available, and federal unemployment benefits included in the CARES Act are set to expire at the end of July. Without such federal support, we anticipate the economic outlook to become increasingly uncertain, but we know that the debt and surging deficits created by the historic government stimulus are not sustainable. This is something we’re mindful of as we craft long-term investment plans.
With a better-than-expected economic recovery in Q2, the markets rallied as well. Small caps outperformed large caps – as is to be expected given their greater sensitivity to changes in economic activity – and growth substantially outperformed value thanks to the strength of large-cap tech.
As Europe and Asia saw consistent declines in new COVID-19 cases during Q2, international markets also rallied. Emerging markets modestly outperformed foreign developed markets and the S&P 500 due to optimism for a global economic rebound and a decline in the U.S. dollar. Oil was historically volatile in the second quarter while gold added to its first-quarter gains.
As we begin the second half of what’s been an incredibly unusual year, a lot of uncertainty remains. So far, markets have largely ignored the looming presidential election, but that’s likely to change in Q3. We anticipate it will affect not only specific sectors but also the broad markets. There is, however, encouraging unity from the global medical community to pursue a vaccine for COVID-19 and historic support and stimulus not only from the Federal Reserve but also from every major global central bank.
Bottom line, investors face a lot of unknowns as we begin the second half of 2020, but there are also powerfully positive forces supporting markets. Although past performance is not indicative of future results, history has shown that a long-term approach combined with a well-designed and well-executed investment strategy can overcome periods of heightened volatility, market corrections, and even bear markets. And, we’ve seen that again so far in 2020. Therefore, it’s critical for you to stay invested, remain patient, and stick to the plan, as we’ve worked with you to establish a unique, personal allocation target based on your financial position, risk tolerance, and investment timeline. Thanks for your trust and confidence in Canyon Oak Financial as we help you successfully navigate 2020.
Want to dig into the sources for any of these facts? Here’s the supporting backup.