3rd Quarter 2020 Report to Clients
The third quarter brought a faster-than-expected economic recovery as the number of new coronavirus cases topped out in July and declined in August. While growth stocks continued to post strong gains, a V-shaped rebound in consumer spending, construction, housing and industrial production provided a significant lift to beaten-down value stocks. Although Congress could not agree on new stimulus programs, the Fed took additional action on the monetary side which helped the economy hold up in September. Investors were encouraged by good news on the vaccine front, with several promising candidates entering Stage 3 trials. The S&P 500 finished the third quarter with an 8.9% gain, for a year-to-date gain of 5.6%. The bond markets held up well in the face of stepped-up Treasury issuance, though government bond funds finished around breakeven for the three-month period. It was a better story for corporate bonds, with lower-grade issues benefiting most from the combined effect of strong demand from the Fed along with an improving economy. The Barclay’s U.S. Aggregate Bond Index returned 0.6% for the third quarter, finishing with a year-to-date increase of 6.8%. Our stock portfolios continued to outperform thanks to our overweighted large-cap growth positions. But as the valuation disparity between growth stocks and value stocks approached Y2K-like extremes, we opted to take some profits and boost our exposure to value funds. In most cases these moves had a neutral-to-positive impact on performance. Bond-wise our exposure to corporates allowed conservative accounts to finish ahead of the Barclay’s index for the quarter, whereas accounts with high-yield bond exposure ended substantially ahead of the benchmark.
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