July 2020 Financial Market Memo
Global markets continue to prove optimistic with respect to a successful COVID-19 outcome. Emerging market equities once again outperformed their U.S. counterparts, increasing 8.58% as compared to the U.S. markets (VTI) and developed international markets (VEA) which trailed at 5.74% and 2.63%, respectively. Global bond markets (BND) also gained a healthy 1.45%. Yet, in spite of another month of positive performance markets continue to seek a true catalyst for sustained long-term growth.
During the most recent Fed meeting, Chair Powell again reaffirmed his commitment to keep rates at 0%. He expects an accommodative policy for as long as needed – until the U.S. economy can recover – but stressed continued risks to the downside. Similarly, policymakers have embraced the importance of continued fiscal support, as a premature end could risk downward economic pressure. With unemployment benefits following the CARES act coming to an end, coupled with second quarter GDP down -9.6% (or -32.9% annualized) – the largest drop ever recorded in a single quarter – the U.S. economy remains in need of further stimulus. As a result, the Republican ‘HEALs’ and Democratic ‘Heroes’ acts have emerged. The most debated difference between these two proposals lies in their total cost – the ‘HEALs’ act is estimated at $1 trillion whereas its contender, the ‘Heroes’ act, comes in at $3 trillion – each plan having an approx. +/-$1 trillion difference when compared to the preceding $2.2 trillion CARES act. While the details of the next wave of stimulus remain uncertain, one thing is clear – some form of compromise will be needed if a decision is to be made before further economic decay.
Aside from the short-term solution of continued fiscal stimulus, the FDA has recently instituted a fast-tracking approval process for COVID-19 vaccines, which could potentially paint the path toward a more long-term solution. This accelerated process would allow clinical trials, which can typically take at least 10 years, to be completed within a few months. As a result, many biopharmaceutical companies have begun human trials, which is the last step needed before approval and mass production can begin – a positive indicator as economies look to reopen. Ultimately, while equity valuations remain elevated, we continue to emphasize caution. Uncertainty will persist, but it’s important to stay focused on your long-term goals and control what you can: diversification, taxes, and fees.
Major Market Index Returns
Period Ending 7/31/2020 (Annualized)
Selections include ETFs generally available to consumers. Returns are net of management fees but do not include trading and Advisory fees. Return source: Morningstar. AP disclosure.
Sample Portfolio Mix Returns (Annualized)
Global portfolio mixes are Stocks/Bonds and are represented by VT/BND; returns are annualized. Vanguard funds are net of all management fees but do not include trading and Advisory fees. Return source: Morningstar. AP disclosure.
What You Pay For: The Percentage of Active Managers That Underperform Their Benchmarks
Trailing 10 Years Numbers As of December 31, 2019 — S&P SPIVA Scorecard