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Key Takeaways, Third Quarter 2020
By Ralph Goldsticker, CFA | 21 October 2020

Capital markets continue to be dominated by the coronavirus pandemic and the impact of related policy responses on world health and the global economy. After rebounding during the second quarter from the first quarter’s sharp selloff, global equity markets continued their climb during the third quarter. Nonetheless, equity markets remain volatile due to ongoing pandemic concerns, governmental policies and significant economic uncertainties. Sovereign bond yields and Treasury interest rates are at, or hover near, record lows, and are expected to remain there.

Equities

 

Global stock markets continued their strong and surprising rally. The broad US market is now in positive territory for the year. 

  • The broad US stock market gained 9.2% during the quarter and is now up 5.4% for the year.

  • Large cap stocks gained 8.9% in Q3 and are up 5.6% YTD. Small caps gained 4.9% over the quarter but are still down 8.7% YTD.

  • Growth stocks continued to outperform value during the quarter, growth gaining 13.2% versus value’s 5.6%. YTD growth has outpaced value a remarkable +24.3% versus -11.6%.

  • Developed international and emerging markets gained 4.8% and 19.6%, respectively during the quarter. YTD they are down 7.1% and 1.2%, respectively

  • After the fastest bear market plunge in history, stock markets reversed course and realized the fastest recovery on record. 

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Fixed Income

With the Fed reiterating its plan to keep rates low for the foreseeable future, interest rates on US Treasury securities saw little change. Specifically, UST rates declined a few basis points (bps) at the short end and climbed a few bps at the long end. 

  • The yield on the 1-year Treasury note fell 4 bps, the 5-year note 1 bp, and the 10-year bond increased 3 bps. At the longer end, the yield on 20- and 30-year Treasury bonds increased 5 and 4 bps, respectively.

  • Driven by the same factors that caused stocks to rally, credit and liquidity spreads continued to narrow during the quarter.

  • Investment grade credit spreads compressed 14 bps while High Yield spreads compressed 109 bps during the quarter. Investment Grade and High Yield spreads are 38 and 181 bps wider, respectively, than they were at the start of the year.

Alan Biller and Associates is an investment adviser registered with the U.S. Securities and Exchange Commission

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