We had another down week, with the S&P 500 losing 2.2%, bringing the YTD loss to 10.7%. According to data provided by John Hancock Investments, growth stocks (as measured by the Russell 1000 growth index) were relatively flat YTD, while the Russell 1000 value index was down 22% YTD. This is repeated by the NASDAQ index (heavily weighted in growth and technology stocks) is up 0.8% YTD. For the many reasons causing these indices to behave in this manner, we adjusted our clients’ portfolios last week to move some of the value stocks to growth stocks. Bonds were flat to edging slightly positive, while municipal tax-free bonds were up almost a half percent.
The nation’s reaction to the COVID crisis continues to dominate the headlines, as well as COVID’s impact on the economy. I heard on the news that as of today, 48 of the 50 states will have begun lifting some of the restrictions to residents and businesses of their states. Once we finally get to the other side of this, we will have a much clearer sense of the economic damage that was sustained and how long it will take for the economy to recover. If someone is able to develop an effective vaccine that can be given to most residents of the US, then the fear should begin to subside and several of the hardest hit sectors of the economy (restaurants, entertainment, leisure, and travel) will begin to show signs of recovery. Until then, we will be waiting on new data from states that have begun allowing most businesses to restart, such as Georgia. If their number of cases and/or deaths remain the same or go down, then that should give more confidence to other states to reduce the burden being placed on their residents and businesses. As I have noted in prior weeks, we are teetering on the fulcrum where the economy could tip either way.
There is an interesting statistic provided by John Hancock that also caught my attention. They reported that the forward PE of the S&P 500 on March 23 (market low) was 13.1, the lowest since 2016. However, the forward PE on May 7 was 20.4, the highest in nearly two decades. That data implies that the markets went from cheap on March 23 to expensive in the last couple weeks. I have not dissected the numbers yet, but you can be sure that I will be researching that further.
Have a great week, and continue to be safe and healthy as many businesses and activities begin to ramp up.