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Market Commentary

June 2020



Civista Wealth Management Logo
Frank P. Sudal, CFP®, CFA
Trust Investment Management

Total Returns (%) as of June 30, 2020

Fixed Income YTD 1 Mo 3 Mo 1 Yr 3 Yrs 5 Yrs 10 Yrs
U.S Aggregate

6.14

0.63

2.90

8.74

5.32

4.30

3.82

High Yield

-3.80

0.98

10.18

0.03

3.33

4.79 6.68
Global

1.04

0.96

2.98

0.86

2.87

3.32

1.81

Equities






U.S. Large Cap

-3.08

1.99

20.54

7.51

10.73

10.73

13.99

U.S. Small Cap

-12.98

3.53 25.42

-6.63

2.01 4.29

10.50

Developed International

-11.34

3.40 14.88

-5.13

0.81 2.05 5.73
Emerging Markets

-9.78

7.35

18.08

-3.39

1.90

2.86

3.27
Source: Morningstar.  U.S. Aggregate - BBgBarc US Agg Bond.  High Yield - BBgBarc US Corporate High Yield.  Global - FTSE WGBI NonUSD.  U.S. Large Cap - S&P 500.  U.S. Small Cap - Russell 2000.  Developed International - MSCI EAFE.  Emerging Markets - MSCI EM.
 

Throughout the second quarter of 2020, equities climbed more than any other quarter in nearly two decades. Investors were rewarded for staying the course as the markets surged. Most gains, driven by the expectations of a strong economic recovery, occurred in April and May. The increase in COVID-19 cases threatened the reopening of the economy and slowed the upward momentum in June, however, the returns for the month were still positive.

U.S. small caps jumped a colossal 25.42% and ended the second quarter well ahead of the other major indices. U.S. large caps were not far behind with an impressive 20.54% gain.  Emerging markets and developed international did not disappoint with robust returns of 18.08% and 14.88%, respectively.  Fixed income also rallied. High yield bonds advanced 10.18% as investors reengaged risk assets. Global bonds rose 2.98% followed by U.S. aggregate bonds, up 2.90%. Both equities and fixed income posted positive returns across the board, not only for the month but also for the quarter. 

Although equities have apparently priced in an effective treatment, if not cure, for COVID-19, the measures taken to contain the spread continues to disrupt economic activity in the United States and abroad. According to the most recent minutes from the Federal Open Market Committee meeting, “U.S. real gross domestic product (GDP) would likely post a historically large decline in the second quarter.”  However, “risk sentiment improved, on net, as optimism over reopening the economy, potential coronavirus treatments, the unexpectedly positive employment situation report, and other indicators that suggest that economic activity may be rebounding, more than offset concerns arising from otherwise dire economic data releases, warnings from health experts that openings may have been premature, and renewed tensions between the United States and China.”

While the markets have responded favorably to low inflation and interest rates, the slowing pace of reopening’s, due to the spike in COVID-19 cases, has created uncertainty for corporate profits. Equites are overvalued and multiple expansion is not sustainable. Earnings growth will be necessary for the markets to continue climbing higher. We will likely see volatility over the remainder of 2020, as investors monitor the progress of the pandemic to estimate when life, and the economy, may finally return to normal.

Stay healthy and remember that panic is not a viable investment strategy. Focus on long term goals and remember this “new normal” will eventually pass.