Equities Rebound Following the Q1 COVID-19 Shock
The first half of 2020 brought about seemingly insurmountable challenges and unpredictability on a global scale. After stocks nosedived in the first quarter, the S&P 500® Index had its best quarter in over 20 years, returning 20.54% in the second quarter, and erasing most, but not all, of the first-quarter losses. Year to date, the S&P 500 was down 3.08% through June 30.
International developed market equities and U.S. small-cap stocks also rebounded strongly in the quarter, returning 14.88% and 25.42%, respectively, but they were hit harder overall in the downturn relative to the U.S. large-cap market, declining 11.34% and 12.98% year to date. Value stocks significantly underperformed growth stocks with the Russell 1000® Value Index down 16.26% and the Russell 1000® Growth Index up 9.81% in the first half of the year. Value indices contain many more businesses that have been adversely affected by COVID-19.
Interest rates declined slightly during the quarter as the 10-year U.S. Treasury yield declined from 0.68% to 0.65%, allowing the Bloomberg Barclays U.S. Aggregate Bond Index to advance 2.90% for the quarter and 6.14% for the first half of the year. High yield bonds rallied 9.61% during the quarter, cutting the year-to-date loss to 4.78%. Municipal bonds rallied 2.72%, bringing the Bloomberg Barclays U.S. Municipal Index into positive territory for the year with a return of 2.08%.
Index definitions: Large-capitalization stocks are represented by the S&P 500® Index, a market capitalization-weighted index that includes 500 of the largest companies in leading industries of the U.S. economy. Growth stocks are represented by the Russell 1000® Growth Index, a market capitalization-weighted index of growth-oriented stocks of the 1,000 largest companies in the Russell Universe, which comprises the 3,000 largest U.S. companies. Value stocks are represented by the Russell 1000® Value Index, a market capitalization-weighted index of value-oriented stocks of the 1,000 largest companies in the Russell Universe. Small-capitalization stocks are represented by the Russell 2000® Index, a market capitalization-weighted index of the 2,000 smallest companies in the Russell Universe. Developed international markets are represented by the MSCI® EAFE Index, a free float-adjusted market capitalization index that measures developed foreign market equity performance, excluding the U.S. and Canada. The Bloomberg Barclays U.S. Aggregate Bond Index is a market value-weighted index that tracks the daily price, coupon, pay downs, and total return performance of fixed-rate, publicly placed, dollar-denominated, and non-convertible investment grade debt issues with at least $250 million par amount outstanding with at least one year to final maturity. The ICE BofAML U.S. High Yield Index tracks the performance of U.S. dollar denominated below-investment-grade corporate debt publicly issued in the U.S. domestic market. The Bloomberg Barclays U.S. Municipal Index covers the USD-denominated long-term tax exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds and prefunded bonds. The indexes are unmanaged, their returns do not reflect any fees, expenses, or sales charges, and they are not available for direct investment.
Past performance is no guarantee of future results.
All investments carry a certain degree of risk, including possible loss of principal.
The commentary is the opinion of Kayne Anderson Rudnick. This material has been prepared using sources of information generally believed to be reliable; however, its accuracy is not guaranteed. Opinions represented are subject to change and should not be considered investment advice or an offer of securities.