As summer comes to an end and students attempt to return to school, we want to update you on what has been happening in the investment markets.

Driven by three primary factors, the investment markets in the United States have rallied since they bottomed in March of this year following the initial outbreak of the coronavirus. The first factor has been the perceived safety and future potential of large technology companies. The five largest companies in the S&P 500 Index:  Apple, Microsoft, Amazon, Facebook, and Google, are solely responsible for the index reaching an all-time high in August. Ironically, the other 495 stocks, in aggregate, still have negative year-to-date performance. Investors moved a significant share of their stock investments into these technology companies.  These five companies now comprise over 23% of the S&P 500 Index.

In the second quarter of 2020, we moved client portfolios from having a heavier tilt toward the value style of investing toward the growth focus.  This process was accomplished primarily by increasing exposure to the S&P 500 index.

The second factor allowing for positive recoveries in the investment markets has been the swift and enormous amount of fiscal support provided by the government. Forgivable loans to small businesses, expanded unemployment benefit payments, and stimulus checks all provided timely and meaningful support to the economy. It appears that additional federal stimulus will be provided in the coming weeks and months as the economy continues to struggle to recover. These support measures give the investment community confidence that the government is willing to ensure the country will not suffer an economic collapse.

The third factor allowing markets to rise has been the unprecedented collaboration between governments and pharmaceutical companies to expedite research, development, and delivery of a vaccine and medicines to mitigate the effects of the virus. The speed with which medical solutions for the coronavirus are expected to be available has provided optimism that the negative economic impacts of the virus may be shorter than initially forecast.

How do these factors influence our investment strategy for the remainder of 2020?

Most client portfolios remain underweight to stocks. While the risk for another stock market downturn this fall still exists, we will be looking to rebalance client portfolios over the next few months. A second downturn, as a result of students’ inability to attend classes in-person or concerns about significant policy changes following the November elections, would likely be less severe than the stock market decline we experienced in February and March. We also must weigh the likelihood that there may not be another market downturn this year.

The first phase of our rebalancing of portfolios will involve adding to positions that are not highly correlated with the stock market. These investments have more risk than cash, but they should allow for modest growth while the country waits on election results and a vaccine.

The next two phases of the rebalancing will be to restore equity positions to take advantage of future economic growth. It is not possible to achieve long-term portfolio growth or even wealth preservation without exposure to the stock markets.

While we rarely vary from target asset allocations in client portfolios, out of an abundance of caution after the coronavirus upended how we live our lives, we felt it was prudent to reduce equity exposures in the spring. We are happy to report that no clients lost money in their portfolios in the second quarter of 2020 and we are on course for reporting another quarter of growth at the end of September.

We value the trust that you have placed in us and we look forward to discussing whatever concerns you have about your planning or your portfolio.

Stay healthy and enjoy the rest of your summer.
Mike