What a quarter!
Who could have guessed a global pandemic would produce out sized stock market returns? Near the end of last quarter (March 23), the Standard & Poor's 500 Index was down 30.75 percent for the year, and it looked like 2020 was going to be a disappointing year for many investors.
Since then, the S&P 500 has gained 39 percent, reported
The Economist
. It rose 20 percent from March 31 to June 30. The Dow Jones Industrial Average also did well, delivering its second best quarterly showing since 1938. The Nasdaq Composite finished the quarter in positive territory.
A variety of factors contributed to the exceptional performance of U.S. stock markets during the quarter:
- The Federal Reserve maintained a supportive monetary policy stance. It has been buying Treasuries and mortgage-backed securities and funding emergency loans.
- The $2 trillion emergency spending package passed by Congress had impact. Stimulus checks, enhanced unemployment benefits, and emergency loans plumped personal income and supported businesses through second quarter closures.
- Positive data suggested economic recovery might be underway. In the United States, unemployment numbers improved, although they remained at historically high levels. Factory activity in China hit a three-month high, and the June Purchasing Manager’s Index in the United States came in above expectations.
Supportive central bank policies helped global economies during the second quarter, too. Stock markets in many regions, including Europe, China, and Japan, finished the second quarter higher. Positive economic data, optimism about coronavirus treatments, and hopes for a vaccine helped push markets higher, reported
T. Rowe Price
.
Consumer confidence also contributed. Callum Keown, Nicholas Jasinski, and Carleton English of
Barron’s
reported: “On Tuesday, the Conference Board reported an 11-point rise in the June consumer confidence index, to 98.1 points. Economists’ consensus estimate had been for a 90.6 reading. American households remain more optimistic about the future than their current circumstances: the present situation index component of the survey rose 15.1 points, to 86.2, while the expectations index rose 9.1 points, to 106.”
It is possible consumer confidence in the United States will be dented by the recent upsurge in coronavirus cases. Last week, the spread of COVID-19 was gaining momentum again. Every day, from Wednesday through Saturday, more than 50,000 new cases were confirmed.
Many states and cities implemented new measures to slow the spread. One of the most important may be mask wearing. Researchers at
Goldman Sachs
reported: "Thus, the upshot or our analysis is that a national face mask mandate could potentially substitute for renewed lock-downs that would otherwise subtract nearly 5 percent from GDP. It is important to recognize that his estimate is quite uncertain because it is based on a number of statistical relationships that are all measured with error. Despite the numerical uncertainty, however, our analysis suggests that the economic benefit from a face mask mandate and increased face mask usage could be sizable."
