By Michael Wursthorn
U.S. stocks wrapped up their best quarter in more than 20 years,
a remarkable rally after the coronavirus pandemic brought business
around the world to a virtual standstill.
Just three months ago, investors were lamenting the end of the
bull market -- and the longest economic expansion on record --
after major U.S. stock indexes lost about 35% of their value in
less than six weeks. The subsequent rebound has been nearly as
Partly thanks to an unprecedented $1.6 trillion stimulus package
from the Federal Reserve and Congress and a surge in trading among
individual investors, the rally has lifted everything from
beaten-down energy stocks to apparel retailers to big technology
"Massive stimulus by the Fed and on the fiscal side has
propelled the stock market's recovery at a speed unlike we've ever
seen," said Liz Ann Sonders, a chief investment strategist at
Charles Schwab & Co.
"But there's a perceived disconnect between what the market has
done and the economic recovery. The reality is, the second half of
the year may see a lot of choppiness."
The S&P 500 finished the second quarter up 515.70 points, or
20%, to 3100.29, its biggest percentage gain since the last three
months of 1998. The Dow Jones Industrial Average added 3895.72
points, or 18%, to 25812.88, its best quarter since 1987. The rally
has cut the indexes' losses for the year to 4% and 9.6%,
The Nasdaq Composite, which is heavily weighted toward big tech
stocks including Apple Inc. and Microsoft Corp., has fared even
better, up 31% in the past three months and 12% for this year.
Stocks wobbled to start Tuesday's session before surging higher
into the closing bell.
The path ahead for the stock market is less clear, especially
with the November presidential election now coming into view.
A Democratic sweep of the White House and Congress looms as a
potential risk in the months ahead. Analysts say a
Democratic-controlled government would likely roll back the tax
cuts Congress enacted in 2017, constraining corporate profit
The market's rally has slowed lately as a resurgence in
coronavirus cases in some parts of the U.S. and civil unrest
sparked by the killing of George Floyd, a Black man in police
custody, have dented sentiment. After logging its biggest two-month
percentage gain since 2009 in April and May, the S&P 500 rose
just 1.8% in June.
The economic picture also remains bleak. Nearly 20 million jobs
have been shed since February, and retail sales are far below
prepandemic levels. Manufacturing activity in the U.S. has also
contracted, albeit at a more gradual rate.
Predicting how the stock market will fare in the months ahead
has never been simple, but the economic crisis wrought by
coronavirus has rewritten the traditional investing playbook.
"You have traders trying to figure out a medical problem," said
JJ Kinahan, chief market strategist at TD Ameritrade. "Because
people will make assumptions or because there's a lack of
knowledge, the one thing we can all expect is more volatility."
Michael Scanlon, a portfolio manager at Manulife Investment
Management, said he expects stocks to be stuck in a relatively
narrow trading range through the end of the year unless there is a
breakthrough on a coronavirus treatment. But that hasn't dampened
his enthusiasm for U.S. stocks relative to equities in other parts
of the world.
"This has been the ultimate Peter Lynch market and that will
continue," said Mr. Scanlon, referring to the former Fidelity
Magellan Fund manager's often-quoted catchphrase, "Invest in what
you know." Mr. Scanlon's fund, the $2.6 billion John Hancock
Balanced Fund, has bought stocks such as Ulta Beauty Inc. in recent
months, betting the cosmetics company will thrive despite the
struggles plaguing department stores.
He added the fund has maintained big positions in Microsoft,
Amazon.com Inc. and other popular stocks that have rebounded
sharply. Mr. Scanlon's fund is up about 0.5% so far this year,
beating the S&P 500.
Some investors are more bearish, including famed stock picker
Jeremy Grantham who said on CNBC about two weeks ago that investors
buying stocks right now are "simply playing with fire."
A second wave of coronavirus cases was cited as the most
prominent risk facing stocks for a fourth consecutive month,
according to a survey of 190 fund managers by Bank of America in
June. Permanently high unemployment and a Democratic sweep of the
"Covid is going to outweigh the presidential election at least
until October unless there's some sort of shock between now and
then," Mr. Kinahan said, referring to the possibility that former
Vice President Joe Biden or President Trump releases policy
proposals roil the health-care or financial services sectors.
The stock market's performance in the months ahead of the
election could have a big impact on the outcome of the race. Data
going back to 1928 show the incumbent party has won the contest 87%
of the time if the S&P 500 is positive over the three months
ahead of the election and lost it when it is negative, said
Courtney Rosenberger, director of policy research at Strategas
The expectation of near-term volatility has led some analysts
and money managers to encourage investors to take a shorter-term
look at their portfolios, rather than reviewing on a monthly or
Ms. Sonders said rebalances should be considered as often as
every few weeks. Planning beyond that is difficult because so many
companies have suspended their earnings guidance, she added.
More than 180 companies in the S&P 500 have withdrawn their
forecasts for 2020, according to FactSet, making it difficult for
investors to value stocks. Just 49 companies have issued guidance
for the coming second-quarter earnings season, the fewest since
FactSet began tracking such data in 2006.
"Valuation is a total crapshoot with a record number of
companies withdrawing guidance," Ms. Sonders added. "We can plug in
a forward consensus, but there's no clarity around the plugs."
Analysts predict earnings among companies in the S&P 500
will contract nearly 22% this year, according to FactSet, before
beginning to rebound next year. That's a stark reversal from their
call at the beginning of the year for 9.2% growth.
The lack of visibility hasn't appeared to slow the market's
rebound. Aggressive efforts by the Fed to stabilize credit markets
and a massive aid package from Congress that included enhanced
unemployment insurance and loans to struggling businesses gave many
investors confidence to jump back into the market.
And many analysts say they have been amazed to see individual
investors flocking to platforms including Robinhood Markets Inc.
that offer zero-commission trades to take advantage of discounted
share prices, adding further momentum to the rally.
Wall Street banks have revised their targets several times this
year to reflect the rapidly changing outlook.
Bank of America's analysts recently put a 2900 year-end price
target on the S&P 500, abandoning previous calls of 2600 and
3100 from earlier points in the year. That target suggests the
stock market has topped out this year and will fall 6.5% by
December. Others have abandoned their forecasts altogether in light
of the uncertainty.
Write to Michael Wursthorn at Michael.Wursthorn@wsj.com
(END) Dow Jones Newswires
June 30, 2020 17:14 ET (21:14 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.