The US capital markets rebounded sharply during Q2 as the Federal Reserve and Congress supported risk assets to combat the sharp economic disruption caused by Covid-19 through the implementation of a myriad of programs, including rate cuts, enhanced government benefits and targeted legislative aid. The swift action by Congress in conjunction with the Treasury Department and The Federal Reserve calmed markets and provided liquidity and stability during a time of panic.

Domestic Equities

US equities recorded their best quarterly return since 1998 with the US broad market returning 22.10%. Large Cap led the way, as reflected in the Nasdaq Composite quarterly return of nearly 31%. As of June 30th, the US Broad market is only off -3.75% year to date. However, the US market is not cheap compared to a historical basis, with the S&P trading at 21.42 x forward P/E ratio. That being said, these are not normal times and the market is forecasting a quick recovery of corporate profits.

International Stock Markets

The MSCI Index and MSCI Emerging Markets Index returned 14.88% and 18.08% during the quarter; however, the indices are still down -5.13% and -3.39% over the latest 12-month period.

Bond & Credit Markets

The 10 and 30-year treasury closed the quarter with yields of .65% and 1.41% respectively. Government action pushed prices dramatically higher and yields consequently diminished. To put these price moves in perspective, already low yielding fixed income paid nearly 140 basis points higher just one year ago. The US Aggregate returned nearly 3% in the second quarter. High yield, which was decimated in the previous quarter, rebounded by 9.58%.

Commodity Update

Oil bottomed in the latter part of April and, if you can believe this, actually closed just above $10 per barrel on April 21st, before stabilizing and ultimately heading higher, settling in the $40 range. Gold closed at $1,793 and was up 13.27% for the quarter.

Investor Behavior

The strategy of sitting on the sidelines and waiting for more clarity rarely benefits the investor. Working with your team, maintaining discipline, rebalancing, while staying true to your previously agreed upon allocation, is the best way to achieve longer-term success. Making money in the capital markets is never easy and there always are underlying risks to weigh. To the surprise of many, the capital markets have made up most of the losses from 1st quarter 2020. The economy may or may not be a V-shaped recovery but, as of this writing, the capital markets have retraced most of the steep decline after bottoming on March 23rd, which now feels like a lifetime ago. It has been an exhausting year thus far and will remain complicated, as we do not know when the Covid-19 Pandemic will wane. Capital markets are being influenced by the Federal Reserve and Government fiscal policy even more so than the financial crisis of 2007- 2009. We are in uncharted waters. In essence, the markets have been backstopped with fiscal stimulus and investors have recognized this. Employment reports are improving and businesses are opening. US companies and Americans are adapting and innovating. That is a good thing and is the American way.

Finally, as if Covid-19 has not complicated matters enough, there are also the US Presidential and pivotal senate elections in just 4 months. That will be interesting, but the capital markets will once again adapt regardless of the outcome. That is what they do.

Thank you for being a client of our firm. We are grateful that our operations never stopped during this pandemic and are thankful that all of our team members have remained healthy. We have clients whom have been adversely affected by Covid-19, with both life threatening and minor health effects. We have other clients whose businesses have been negatively impacted as well, while still some others have thrived. We worry about all. These are far from normal times. Please be well and stay safe.

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