When we meet with clients some are shocked to see how quickly the stock market rebounded and rallied to new highs given the ongoing global pandemic. With many businesses still shut down and the unemployment rate just under 8% it is clear that the economy is still not in good shape. However, there is a difference between the economy and the stock market. Keep in mind that the stock market is forward looking while unemployment and other economic numbers are mainly lagging indicators.

It’s also important to think about what is “the market.” Typically the benchmark used to define the market is the S&P 500 which most investors know. What they might not realize is that because it is a market cap weighted index the largest stocks: Apple, Microsoft, Amazon, Alphabet (Google), and Facebook currently make up around 24% of this index. Since they have become larger companies they have a larger weighting within the index. These massive companies have performed very well but the market recovery has not been broad and most stocks are still negative year to date. See the below chart from Charles Schwab. As of September 18th, the top 5 largest stocks were up 28.8% on average while the rest of the S&P 500 was still negative on the year. This shows that most companies in fact are not doing well this year. The “market” is up however because these mega cap companies have pulled the whole index higher due to their weight within the index and outsized return year to date. As the economy recovers, we should expect a broadening out of the market where more companies and stocks begin to also perform well, as we continue to reopen and eventually return to normal.

U.S. Stocks

Despite stocks experiencing a correction in September, stocks still advanced for the quarter posting an 8.93% return as measured by the large cap S&P 500 Index. Mid and small cap stocks once again lagged larger company stocks but still posted positive returns of 4.77% and 4.93%, respectively for the quarter. Year to date the S&P 500 Index has returned 5.57% while mid cap stocks are down (8.62%) for the year and small cap stocks are down (8.69%). As mentioned earlier, the largest mega cap companies have performed well but stocks as a whole are mostly still negative for the year.

International Stocks

The EAFE Index for developed stocks outside the U.S. returned 4.80% for the quarter but is also down (7.09%) for the year. Emerging market stocks gained 9.10% this quarter yet remain negative (1.16%) for the year.

Bond and Credit Markets

The Federal Reserve announced they expect to leave interest rates near zero through at least 2023 to help the economy recover. Their plan seems to be to leave interest rates low until inflation is seen. While a loose monetary policy has caused asset bubbles to form in the past, it seems the Fed is more concerned with getting America back to work with maximum employment now being their primary goal.

The Aggregate Bond Index returned 0.62% for the quarter. For treasuries, with the Fed controlling the front end of the yield curve, 2-year treasury rates are yielding just 14 basis points at quarter end. Further out on the curve, a 10-year treasury yields only 68 basis points. The 30 year treasury pays slightly more at around 145 basis points, as of the end of the quarter. While the yield curve is upward sloping, it remains very flat. As the economy recovers we should see a steepening of the curve over time.


Brent Crude oil finished the quarter around $40 a barrel. Gold prices are up around 23% year to date despite its recent drop toward $1,800 an ounce. In September, it rallied to finish the quarter at $1,888 per ounce.

Moving Forward

The President contracting COVID-19 about a month before Election Day seems on par for what has been an unpredictable year. While U.S. stocks have allowed investors to largely recover losses, the economy still remains challenged. More stimulus may be injected to further jumpstart an economy burdened by the ongoing pandemic. It appears the virus will likely continue to spread although hope could come in the 4th quarter in the form of a vaccine as several pharmaceutical companies have vaccines currently in their 3rd and final phase. From an investment standpoint, a bumpy road ahead should be expected, however, further stimulus and an accommodative Fed may continue to provide a backstop for asset prices. As always we are here to coach and advise you through the rest of this unprecedented year and thank you for your continued trust in our firm.

Respectfully Submitted

CRA Investment Committee
Matt Reynolds CPA, CFP®
Tom Reynolds, CPA
Robert T. Martin, CFA, CFP®
Gordon Shearer Jr., CFP®
Jeff Hilliard, CFP®, CRPC®
Joseph McCaffrey