Chartwell Reviews

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.

Year-end 2019 brought a close to a strong quarter, year and decade of performance – extraordinary for many asset classes.  In our Chartwell Review, we take a look at where stock and bond markets finished the quarter/year/decade, where valuations and interest rates stand, and factors that may impact markets in 2020.  For those that track market performance through  a presidential cycle,  health-care and technology stocks typically suffer their worst performance of the 4-year election cycle in the presidential  election year.  Financials, energy and utilities – all value and defensive sectors, have had their best average performance in presidential election years.

 Market volatility continued to be the theme in global markets, with equity and bond markets sending out mixed signals of strength and weakness.  You can back up any position you’d like with observable data, which makes it very difficult to chart the right course.  One common factor essential to future investment success across all asset classes is growth – global economic growth, earnings growth, labor and wage growth, etc.  In our Review, we look into what’s “got growth.”  The US yield curve has had bouts of being inverted this year.   On our Back Page Perspectives, we examine the topic of inverted yield curves and whether they are good predictors of recessions or market downturns.