The stock market continued its strong gains in July and August before stumbling in September. By the end of the quarter, markets managed to post overall gains as they continued to dig out from losses earlier this year.
However, the gains have not been evenly distributed. Large growth stocks, especially a handful of technology stocks, have largely driven the market’s positive returns. Large U.S. growth stocks are up 24.3% year-to-date, while large value stocks are down 11.6%. For smaller U.S. stocks, growth is up 3.9%, and value is down 21.5%.
Internationally, emerging market stocks outperformed U.S. stocks with a very strong quarter. International developed market stocks also performed well, but they underperformed U.S. stocks.
Like the stock market, the underlying economy is recovering from earlier losses. In the second quarter, the U.S. economy shrank by 31.4%. According to estimates, third-quarter growth will likely be above 30%. Unemployment, while still high at 7.9%, continued to fall throughout the quarter.
In August, the Federal Reserve announced a change in policy from a specific inflation target of 2% to a “flexible inflation target” of 2%. This implies that the Federal Reserve will allow inflation to rise above 2% before raising interest rates, which means that rates will likely remain lower for longer. The yield on 10-year Treasury bonds ended the quarter at only 0.69%.
We head into the end of the year with much uncertainty around the coronavirus, future stimulus, the election, and the direction of the country. While it may be tempting to make major investment changes during times of uncertainty, maintaining a balanced and well-diversified investment approach works best.
|Index||3rd Quarter 2020||Year-to-date|
|Dow Jones 30||8.22%||-0.91%|
|Bloomberg Barclays U.S. Agg Bond||0.62%||6.79%|
|MSCI EAFE Index||4.88%||-6.73%|
|MSCI EM Index||9.70%||-0.91%|
Sources: Y Charts and J.P. Morgan Asset Management
Figures as of September 30, 2020. Past performance cannot guarantee future results.
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