The stock market’s recovery from the COVID-influenced market sell-off in March accelerated last quarter as multiple pharmaceutical companies announced successful vaccine trials

The U.S. stock market gained 8.9%1 last quarter as investors gained confidence that the worst of the COVID 19 crisis was behind us. Still, it has been a umultuous year and the risks are not all behind us.

Stock prices rebounded sharply last quarter as investors began to anticipate the eventual economic recovery.  Whether the recovery actually comes to pass as soon as the market is hoping is another thing entirely, but it is important to remember that the stock market is a discounting mechanism.  In other words, it represents the collective expectation of participants. 

It probably comes as a surprise to no one, but the first quarter of 2020 was the worst first quarter in modern market history. The stock market lost 19.6% during the quarter, but even that fact masks the truly awful stretch between February 20th and March 23rd in which the S&P gave up more than a third of its value.

2019 closed on a high note for stocks as interest rate cuts fueled a speculative boom which has continued into 2020. Against a backdrop of accommodative central banks all over the globe and a somewhat more cordial relationship between the world’s two foremost economic powers, investors everywhere became more aggressive. With dividends reinvested, the S&P 500 soared 31.49% on the year.

The third quarter of 2019 paled in comparison to the previous two quarters as global weakness and trade fatigue combined to depress returns. Even a widely expected September rate cut could barely elicit a “ho-hum” from investors. While corporate profits once again exceeded expectations for most companies, future guidance was not very encouraging.

The second quarter of 2019 is in the books, as they say, and it was another good one for both stocks and bonds. The key to market gains was Federal Reserve Chairman Jay Powell’s capitulation on interest rates. Ordinarily, the Federal Reserve does not cut interest rates during a period of strong market performance for fear of stoking investment speculation.

Stocks rebounded sharply in the first quarter as investors reacted favorably to the Federal Reserve’s change of heart on interest rates.

Stocks had a rough quarter worldwide. In fact, 2018’s poor performance has raised the question as to whether or not the post-financial crisis bull market was over. Stocks declined during the summer of 2011 and again from late summer 2015 through mid-winter 2016, but both times they rallied sharply after the low was put in. This reinforced the strategy of “buying the dip”.

The U.S. stock market posted another strong quarter, rising 7.20%.i Once again, however, it was pretty much the “only game in town”. International markets were about flat on balance, with developed markets up 1.51% and emerging markets down -2.16%.ii Bonds were almost unchanged as the S&P U.S. Aggregate Bond Index rose 0.07%.