Chartwell Reviews

The end of the first quarter marked the one-year anniversary of the global COVID-19 pandemic.  It was an unprecedented year in many respects.  Just as no one anticipated the onset of the pandemic, few (if any) anticipated the investment markets ability to rebound.  What a difference a year makes, as we look at the trailing one-year results.  The swiftest fall of the S&P 500  from peak to trough was followed by a swift 5-month recovery, paving the way for a new bull market cycle.  This rebound was driven in part by the actions to contain the COVID-19 virus, development  and delivery of a successful vaccination program in record time, and unprecedented monetary and fiscal responses by global central banks and governments.  While we can see the light at the end of the tunnel, we anticipate market volatility will remain high in 2021 as we deal with re-opening of economies and the impact of new virus variants.  

In hindsight 2020 was a year like no other – a deadly pandemic, global shutdown and recession, a sharp market collapse followed by a surprisingly swift market recovery.  The word “unprecedented” was never used more!  Market volatility was high throughout the year in both the stock and bond market; yet when the year closed, stock markets finished with double-digit gains and bond markets posted solid advances.  The only “red” on the screen was in real assets – REIT’s and energy-centric commodities.  Our Review summarizes the high- and lowlights of 2020, and how markets are set-up for 2021.   

The theme of our third quarter Chartwell Review is “Changing of the Guard”.   As we are one week away from Election Day, thoughts naturally go to the impact the election may have on markets and volatility.   Changing of the guard, however, means different things to different markets and investors.  There are a number of investment trends that have been in place for up to a decade including:  domestic versus international performance, the growth style versus value, and large cap stocks versus small cap stocks.  With the global macro shocks that have defined 2020 – the COVID-19 pandemic, lockdown-induced recession, record unemployment, social unrest – a changing of the guard in investment trends might be in order.  For those that are curious about the impact elections may (or may not) have on market performance, please read our Back Page Perspectives!

Global stock markets rebounded sharply from a first quarter sell-off sparked by the coronavirus pandemic; despite negative GDP growth, record high unemployment, weak corporate earnings and a spike in COVID-19 cases late in the quarter.  Bond markets rallied driven by unprecedented support from global central banks.   It is too early to tell how sustainable and volatile the recovery might be; what is very evident is the positive impact of swift and significant global central bank programs and support.  The saying “don’t fight the Fed” has never been more applicable!  Real assets also rallied in the second quarter.  In our Back Page Perspectives, we highlight the gold rally and why an allocation to gold should be considered.

Unprecedented is the often-used word to describe what society, economies, and markets were plunged into with the spread of the coronavirus.  As the quarter began, we were 11 years into a bull market and wondering how long that bull would/could run, and what the likely catalyst for change might be.  A global pandemic was not on anyone’s radar screen.  When the concept took hold in mid-February, stock markets plunged.  US equity markets experienced their swiftest fall from peak to troughever; the S&P500 fell -35% in just 22 days.  The swiftest ever descent from bull to bear market was not the only unprecedented event in 1Q20, no economy or asset class was spared. Clients reviewing the performance of their core bond strategies in 1Q20 might be surprised by the challenges those portfolios faced in meeting or exceeding the Bloomberg Barclays US Aggregate Bond Index, the bellwether core bond index.  Our Back Page Perspectives examines the factors that drove that disparity.