Our key themes

Cut through the headlines with three key themes for the second half of the year.

Our Top Market Takeaways for July 3, 2020.

Market Update

One for the books  

The second quarter of 2020 may now be in the rearview mirror, but it’s not one that we’ll forget anytime soon. You probably don’t need to be reminded about the history-making ways in which the COVID-19 crisis ravaged markets as the first quarter concluded back in March…but it’s worth acknowledging how notable the start of the recovery has been over the past three months:

  • The ~20% gain for the S&P 500 in the second quarter was the best quarter in more than 20 years. And strong performance in one quarter has actually been a good omen moving forward. Since the end of World War II, there have been eight quarters where the S&P 500 was up at least +15%. The S&P 500 was up the next quarter 100% of the time, with an average gain of nearly +10%. Even when the going gets tough, it’s important to stick to your plan and stay invested for the long term.
  • It was a great quarter for markets broadly, but the tech-heavy NASDAQ Composite shined especially bright, gaining over +30% in the second quarter. The 10 percentage points of outperformance for the NASDAQ over the S&P 500 was the biggest outperformance in nearly 20 years!
  • Although markets have rallied, volatility continues to remain quite elevated. The VIX Index peaked at a new record high in mid-March, but volatility was actually consistently higher in the second quarter. The VIX Index averaged a level of 34 in Q2, which was the highest daily average for a quarter since 2008 and the third highest on record. Volatility appears here to stay, especially with the U.S. presidential election around the corner.
  • Credit markets had a strong showing too, and we still like the upper-tier portion of high yield bonds. While the absolute level of yields in the space is low, spreads remain quite high relative to risk-free rates. At current spreads of more than 500 basis points, BB- spreads remain near their highest levels of the past 10 years, and have only been wider 15% of the time over the past 20 years.
  • A collapse in interest rates around the world fueled gold to its best quarter since the beginning of 2016, up almost +13%. The strong performance, plus fears of a weaker U.S. dollar, led to a surge of gold inflows on top of already strong inflows from the first quarter. Gold ETFs saw more inflows in the second quarter of 2020 alone than they had for any prior full year total on record. As a strategic holding, we still have high conviction in gold, and our outlook sees it potentially reaching a price of $1,825/oz by mid-2021.
  • The second quarter also saw the bottom fall out in crude prices, with front-month WTI prices plunging into negative territory. The subsequent rebound as markets rebalanced and shutdowns eased led to a more than +90% gain for WTI for the quarter, which was the best gain for WTI in nearly 30 years. While there are short-term risks, we expect oil to continue to move higher. Speaking of energy, if you’re looking for a deeper dive, don’t miss Michael Cembalest’s 10th Annual Eye on the Market Energy Paper.

There’s no knowing if the third quarter will be as unprecedented as the last two, but as investors, we’re focused on the path ahead. To help us navigate it, we’ve revisited three key investment themes guiding us forward. 


Three key themes guiding us forward

  1. Navigating volatility. We don’t need to convince anyone that the only certainty in the future is more volatility. Especially in equity markets. The VIX Index is currently near 30, which implies that the S&P 500 is going to move around +/- 2% every day for the next month. New COVID-19 cases are still at their peaks in states that represent 40% of U.S. GDP, including behemoths California, Texas and Florida. Options markets are suggesting that investors are already looking to protect against election volatility, and before we even get there, we will have to deal with what is likely to be a partisan grind in getting a fourth fiscal support bill. We can help investors Navigate Volatility by adding traditional (e.g., core fixed income and gold) and non-traditional (e.g., hedge funds) buffers to portfolios, deploying capital with dynamic active managers who will take advantage of dislocations, and by encouraging clients to execute on important elements of their estate plans or philanthropic goals.
  2. Finding yield. While equity markets are likely to see more volatility ahead, fixed income markets have been calmed by the biblical response of the Federal Reserve and other central banks. Global central banks have cut interest rates over 130 times this year. An open-ended quantitative easing program and powerful targeted measures have moved Treasury market volatility back to pre-COVID-19 crisis levels. The calm that investors are enjoying now has come with a cost: Rates are unlikely to rise anytime soon. Remember, the Fed’s mandate is for full employment and stable inflation, and right now the unemployment rate is too high and inflation is too low. This means that accommodative policy is here to stay. Investors will need to Find Yield in a low-rate environment by investing in securities that have an attractive risk-premium to sovereign bonds, and by expanding their toolkits into areas like private credit and real estate. On the liability side, individuals can Leverage Low Rates as part of their overall planning and borrowing needs.
  3. Investing in durable growth trends. How much time have you spent on the internet during the lockdown? How many FaceTime calls? Zoom meetings? Did you upgrade your WiFi? What about your laptop? A lot of breath has been spent debating the disconnect between the markets and the economy, but look at the disconnects that exist within the economy. The unemployment rate has spiked to ~13%, but corporate capex hardly budged. In fact, the commodity supercycle collapse resulted in a deeper drawdown in durable goods orders than the COVID-19 crisis did. Why? It might be because companies had to upgrade their technology to keep the business running while all their employees are home! On the healthcare side, innovation in the space will eventually lead to a solution for the COVID-19 problem. There are over 140 vaccine candidates currently being developed, and therapeutic antibody treatments may be ready before a vaccine. We believe the healthcare space will provide a substantial opportunity for growth. Finally, the COVID-19 crisis and the mass demonstrations against systemic racism and inequity in the United States have sharpened our focus on Environmental, Social and Governance issues in investing. The world needs to make changes, and our investments can align with those values. 


Happy Fourth of July! 

Ahh, Fourth of July weekend. Fun in the sun, fireworks, and enough hotdogs (which, according to the National Hot Dog and Sausage Council, are not sandwiches) consumed by Americans to stretch from Washington, D.C. to Los Angeles more than five times. We thought we would revisit the performance of the basket of stocks we put together for our Memorial Day weekend note—needless to say, the stock market isn’t missing out on celebrating summer with boats, coolers, beverages, home improvement and outdoor gear.

Regardless of how you choose to enjoy the weekend, we’re wishing you and your loved ones a happy one! 

All market and economic data as of July 2020 and sourced from Bloomberg and FactSet unless otherwise stated.

We believe the information contained in this material to be reliable but do not warrant its accuracy or completeness. Opinions, estimates, and investment strategies and views expressed in this document constitute our judgment based on current market conditions and are subject to change without notice.


  • Past performance is not indicative of future results. You may not invest directly in an index.
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  • The MSCI China Index captures large- and mid-cap representation across China H shares, B shares, Red chips, P chips and foreign listings (e.g., ADRs). With 459 constituents, the index covers about 85% of this China equity universe. Currently, the index also includes Large Cap A shares represented at 5% of their free float adjusted market capitalization.
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