Summer 2020 Commentary

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Market Recap

For the quarter, U.S. stocks rose sharply, with the S&P 500 gaining 20.5%. International stocks also advanced, with the MSCI EAFE climbing 14.9%. Bonds also increased, with the Bloomberg Barclays Aggregate Bond Index rising 2.9%.

Outlook

We began the second quarter in the midst of an economic catastrophe brought about by the rapid onset and spread of the COVID‐19 pandemic. Corporate profits were plummeting, bankruptcies mounting, and unemployment spiking to levels not seen in generations. So naturally, (tongue firmly in cheek) the market responded with an epic rally which reclaimed most of the losses suffered in the first quarter. The S&P 500 ended the quarter down only 3.1% for the year. This is remarkable considering the severity of the “COVID Crash” in February and March and dire circumstances in the U.S. and global economies.

*This graph is not intended to recommend any investment or investment activity.

The early stages of the market’s recovery in April represented a “snap back” from oversold conditions. The continuation of the rally in May and June was fueled by a growing body of better than expected economic data. The consensus forecast by economists early in the crisis pointed to unemployment surging past 20%. But in a stunning turn, unemployment peaked at 14.7% in April and has since fallen back to 11.1%. This is higher than the peak of 10.0% during the global financial crisis, but still much lower than many feared. The consensus view now points to further economic recovery into 2021.

The better than expected performance of the economy is due, in large part, to the swift and substantial intervention by the government in providing fiscal and monetary stimulus. The most impactful programs appear to have been the boosting of unemployment benefits, the Paycheck Protection Program (PPP), and support for the capital markets by the Fed. The expanded unemployment benefits have allowed many families to stay afloat during the crisis. The PPP program provided many small businesses the support they needed to stay in business. The Fed’s intervention in the financial markets brought calm back to investors who were in the midst of panic. In all cases, the government has indicated a willingness to continue to intervene where necessary to keep the economy on track while we work through this global health crisis.

That leads us to the big question: When will this finally be over? The short answer is: Not soon enough! While it appears there is little appetite to return to full‐scale shutdowns, it is becoming apparent that the disruptions will wear on for the foreseeable future. The good news is that there has been great progress in the understanding of the risks and how to more effectively treat those who become ill. The bad news is that the disease, in many regions, is spreading rapidly, hampering reopening efforts. Rolling restrictions and protective policies (such as wearing facemasks) will likely become the “new normal” until we have a proven and widely distributed vaccine to fight the spread of the virus.

Many industries remain in lockdown or at greatly reduced capacity. Professional sports are attempting a comeback, but few are optimistic they can actually return. The cruise industry plans to resume some level of operations in the coming months, but it is unclear how quickly passengers will be willing to return. The airline industry is limping back to life, but United just announced plans for deep cuts to their staff. In short, it will likely be many months, if not quarters before we can get back to “business as usual.” One of the hardest hit industries during the crisis has been the energy sector. Not only has the loss of economic activity greatly reduced the demand for oil and gas, the Russians and Saudis locked horns in a production dispute that flooded the market with supply. The result was a very brief, but unthinkable, drop in oil prices to negative $37 per barrel. Thankfully, oil prices rebounded and are currently near $40 per barrel, but the effects of the dual crisis in the energy sector continues to disrupt the industry resulting in bankruptcies and job losses.

As we enter the “dog days” of summer, it feels as though the same can be said for the COVID‐19 crisis. We are all ready to turn the page and move on to nicer weather and a return to normalcy.It will eventually happen and there is measurable progress occurring on many fronts. The rally in the second quarter reminds us of two very important principles. First, the market is forward looking. The rally began in earnest when things began to look “less bad” and we gained some hope for a recovery later this year and into 2021. The second (and probably more important) was that it is nearly impossible to predict what will happen in the shortterm.
Our human instincts that compel us to run from danger is especially strong in times of market panic. But, experience has shown that investors are far more likely to make a mistake than to benefit from trying to anticipate and time market gyrations.

Thank you very much for your continued confidence in our service and advice. If you would like to discuss our opinions, outlook, or your portfolio in greater detail, we would be happy to schedule a meeting or a conference call at your convenience. Lastly, don’t keep us a secret. If you know someone who would like help planning for their financial future, we will be pleased to speak with them to see if we can assist.


Horizon Wealth Advisors is a Houston based fee-only wealth management firm. Horizon is a fiduciary advisor. We specialize in helping successful individuals and families understand, organize, and manage their often complex financial situations. Horizon offers integrated financial planning and investment management services.

Owen Murray, CFA
Owen Murray joined Horizon Advisors in 2005. As a core member of the wealth management team, Owen is principally involved in investment research and portfolio construction.

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