Second Quarter 2020 In Review
Summary
The best thing I can say about the first half of 2020 is that it's over. Of course that leaves us with another six months of this crazy year. Let's not think about that right now. Instead, let's focus on what happened during the second quarter.
The first quarter ended with financial markets down and our anxiety levels up. The next two months saw financial markets bounce back aggressively. While I welcome the recovery in the financial markets, the disconnect between the market rally and the grim daily news is unsettling. Uncertainty, which is my contender for Word of the Year, is everywhere.
Second Quarter 2020 Numbers
The average diversified U.S. stock fund, which is a better measure of how we invest than the S&P 500 or the Dow, gained more than 23% during the second quarter. This gain follows a loss of nearly 25% during the first quarter. Investors, justifiably spooked, pulled $28 billion from US stock funds during the second quarter.
International stocks also did their best to impersonate a yo-yo: The average diversified international stock fund up 18%, which comes on the heels of a 23% loss during the first quarter. Investors demonstrated less confidence in international stocks funds by pulling nearly $62 billion out of those funds during the quarter.
The average intermediate-term bond fund gained 5.0% during the second quarter, which added to its gain of 0.4% during the first quarter. In a flight to safety, investors plowed nearly $184 billion into bond funds during the second quarter.
Returns By Broad Category
Can't read this? Here's a link to a PDF of this chart.
The chart above provides a high-level view of how the broad asset categories have fared annually from 2014 - 2019, monthly from January - June 2020 and year-to-date 2020.
I love this chart and always look forward to seeing the updated version. Two takeaways:
Notice any patterns? If you answered "yes", we need to talk because your brain operates on a different level than mine. It's impossible to consistently predict which categories will perform best from year-to-year or month-to-month.
This chart is Exhibit A for why it's prudent to build diversified portfolios. Sadly, diversification means you're always having to say you're sorry because it's rare for every category to produce positive returns.
What's Next?
You may read or listen to the news.
You may ask yourself, well, how did we get here?
You may ask yourself, why won't some people wear masks?
You may tell yourself, financial markets cannot be this disconnected from reality.
You may tell yourself, our elected officials aren't actually leaders.
Same as it ever was.
Given all of the bad news, and the questions you're probably asking yourself, it's natural - and okay - to be nervous or unable to focus. I've found it helps to exercise daily and do something I enjoy, such as painting.
Since we're surrounded by so much uncertainty this year, I recommend focusing on some positive things:
Using history as a guide, we know that financial markets will recover. The timeline for recovery may be different with every event, but it still happens. Your portfolio will recover, too.
At least we have the internet*. Can you imagine being stuck at home without it during a pandemic? The internet allows many people to be able to work from home, get news, and have access to pretty much every form of entertainment.
We've stopped hearing about murder hornets.
Wear a mask when you go out, wash your hands frequently, and stay healthy!
*Don't get any ideas, 2020!