Half-Time Report

By Nicholas Jasinski |  Tuesday, June 30

Halfway Done. Three months ago, we began Review & Preview with the sentence "Stocks fell today to close out a first quarter for the history books."

The bottom of the coronavirus bear market fell on March 23, just before the end of the first quarter. One of the steepest drops in stock market history and tumultuous trading across asset classes were almost perfectly captured by first-quarter statistics.

Well, today stocks rose to close out a second quarter for the history books. The past three months were almost a mirror image of the three months that preceded it. Stocks and other risky assets rocketed off their late-March lows, while bond yields remained ultralow and gold rose to an eight-year high.

Following the Dow Jones Industrial Average's worst first quarter ever—down 23.2%—the index posted its best second quarter performance since 1938—up 17.8% including a 0.8% rise today. The S&P 500 added 1.5% today to end the quarter up 20%—its largest quarterly gain since 1998. 

The Nasdaq Composite and Russell 2000 surged 30.6% and 25%, respectively, over the past three months. The indexes gained 1.9% and 1.4%, respectively, today.

Most of the second quarter's stock-market action took place in April and May. Major indexes have spent June in a relatively narrow trading range, as investors weighed increasing coronavirus cases against positive economic data.

Today's newsflow was a microcosm of that tug of war. Lagging economic indicators from the U.S. and China showed a rebounding global economy, while coronavirus cases and hospitalizations continued to rise in several U.S. states and regions abroad. Disease experts warned about losing control of the outbreak and warned Americans to stay away from bars ahead of the long July 4 weekend.

In the past two weeks, state and local officials in the U.S. and abroad have paused or rolled back reopening plans, some businesses have voluntarily shut their stores, and consumers appear to be responding on their own by staying home and spending less in areas with growing outbreaks. Arizona's governor tightened restrictions yesterday evening, shutting bars, gyms, movie theaters, and water parks for at least a month

That comes after rapid progress on reopening the economy, and major rebounds in economic indicators from depressed levels in March and April. Today, the Conference Board reported an 11 point rise in the June consumer confidence index, to 98.1 points, better than economists’ consensus estimate. 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.

In China, a survey of factory activity rose to a three-month high. The June manufacturing Purchasing Manager’s Index came in at 50.9, slightly ahead of economists’ expectations and indicating expanding activity. China’s Shanghai Composite gained 0.8% today.

The question on investors’ minds is whether those two trends—spreading coronavirus, improving economy—can continue to exist at once, or if new outbreaks will materially impact progress on the reopening of the economy and delay its recovery. Stocks will lack a concrete near-term direction until an answer becomes clearer.