Q2 2020 Market Insights
It’s been a challenging few months on many fronts. Most importantly, we hope this finds you and your family healthy as COVID remains present in many of our communities across the country. As we cross the halfway mark in 2020, markets remain volatile but have proven resilient. Jackson community members and local businesses have shown their grit as well, overcoming new adversities day after day. From an economic standpoint uncertainty is likely to persist, but good temperament and strategic asset allocation can provide stability during these tumultuous times.
A little over three months ago we witnessed the end to the longest-running bull market in history as markets tumbled from record highs at a breakneck pace. The economy entered 2020 in an already vulnerable state feeling the effects of a geopolitical tug-of-war and global monetary policy easing. The COVID pandemic amplified market instability and sent the U.S. markets deep into bear market territory. U.S. Treasuries hit all-time lows, West Texas Intermediate Oil prices went negative for the first time ever, and unemployment hit record highs.
Although the economic recession that officially began in February is historic for its depth, governments responded with fiscal and monetary policy at never before seen speeds and global coordination. The stimulus coupled with businesses Darwinistic approach to finding new ways to operate and pent-up demand helped markets rebound and finish one of their best quarters in over 20 years. The S&P 500 finished the second quarter up 20% at 3100.29, its biggest percentage gain since 1998. The Nasdaq fared even better, finishing up 31% for the quarter and 12% for the year at 10058.77.
The economic recovery may see a quick start through the second half of 2020, but the pace is expected to slow as COVID continues to influence our day-to-day activities. Continued civil unrest and a looming election could also lead to sustained volatility. Given these environmental factors, interest rates and inflation are likely to remain low and nimble, well-capitalized companies are expected to outperform their competition. As markets continue to search for stability, we believe properly constructed, diversified portfolios based on individual goals, risk tolerance and timeline are the best way to build a resilient investment strategy.
While it is hard to see the positives in this pandemic, we believe opportunities exist for the long-term investor in the marketplace. Investors seeking value can find it in the asset classes that have taken the biggest hits, namely, emerging markets and small cap equities. Conversely, we believe investors who were nervous through the steep sell-off in March should use the current rally to raise cash, especially if you hold technology positions that have outperformed this year.
In similar fashion to the stock market, the last few months presented Jackson’s economy with many challenges as well. Shelter-in-place orders forced county officials to rework budgets after analysts projected sales and lodging tax revenues to fall by 50%. After much deliberation and public comment, they approved a $36.5M 2021 general budget, down 19% from the previous year. Sales tax revenue through April and May dropped by 20% year-over-year (YOY), and Grand Teton National Park visitation rates for the month of May decreased by 56% year-over-year. However, real estate dollar-volume in Teton County is up 1% over 2019. Des Jennings, President-Elect of the Teton Board of Realtors, says the $3M+ end of the market was the primary driver of sales through the second quarter. This high-end segment is up 56% through the end of June over the previous year’s sales figures. While the Chamber of Commerce estimates hotel occupancy rates to be half of 2019 rates, short-term vacation rental bookings suggest as busy a summer as any other in town, the valley, and the state. Wyoming’s short-term bookings were up 92% YOY as of June, Teton Village surged 153% YOY, and Jackson increased 112% YOY.
Many challenges and opportunities will arise through the second half of the year. As a country we entered the recession as the strongest world economy, and given our country’s tenacity we expect to emerge the same. We hope you and your family stay well.
The Wind River Capital Management Team