SECOND QUARTER 2020 COMMENTARY
DATE: July 1, 2020
FROM: David G. Dietze, JD, CFA, CFPTM, President and Chief Investment Strategist
Fritz Schoenhut, MST, CFA, Managing Director and Portfolio Manager
I. About Us
As part of our disclosure obligation under Regulation Best Interest, Point View is required to provide you with our Form CRS (Client Relationship Summary). Form CRS describes what we do, how we are compensated, and how we work in your best interest to help you achieve your financial goals.
II. Performance Update
• As the first quarter ended, few could have predicted the market would post one of the strongest quarters in decades after notching its low on March 23rd. At one point up nearly 45% since that inflection point, the S&P 500 was led by some sectors and companies that just a quarter ago were leading the market to the downside. So why the sudden change in sentiment in April and May? Investors appeared to be emboldened by 1) the actions of Congress with the CARES Act to support small business and workers, 2) the measures taken by the Fed to stabilize the markets, and 3) the prospects of medical breakthroughs to reduce the severity of the coronavirus as well as to produce a potential vaccine.
• Once the stone began to roll, it was easy for the market to focus on the positive developments in response to the pandemic. Despite the market mostly shrugging off one of the worst health crises in over 100 years, the US economy succumbed to the abrupt stoppage of work nationwide. Though the contraction can be considered “manufactured” as it was born from the forced closure of non-essential businesses and shelter-in-place orders, the effect was all the same and to a magnitude reminiscent of the Great Depression. Unemployment hit 14.7% in April and GDP contracted 5% in the first quarter with expectations to be even worse in Q2.
• In June the market rally began to fade. Protesting and calls for political action spread across the country. As state economies initiated a phasing in approach and life began its long trek back to normalcy, new outbreaks of the virus rang the alarm that perhaps we are moving too quickly. Must we return to the strict measures of shut down experienced earlier this year? Just how much is Congress/the Fed willing to foot the bill to keep everyone and everything afloat? For all those businesses that had planned on summer openings – can they survive another quarter or potentially six months with their doors closed? Though the emerging economic data indicates a healing economy, market participants must face these larger questions and more as we enter the summer months.
• The major market indices exhibited their top quarterly performances in several decades. The Dow gained nearly 18% (best since 1987), the S&P 500 gained 20% (1998) and the Nasdaq moved up 30.6% (1999). While Tech stocks once again were near the top of the pack, the market was led by the Energy and Consumer Discretionary sectors, up 31.9% and 30.5% respectively. This is due in large part to the risk-on sentiment that catapulted the market following the end of the first quarter. Holding on to the hopes that the global slowdown and quarantines would not be long lived, investors piled back into the positions that were shunned by the Stay-At-Home trade.
• Financials continued to underperform the market, up “only” 11.85% for the quarter, as interest rates remain near historic lows. The Fed has not wavered in its desire to keep rates lower for longer, at least into 2021 and until more certainty on the path of the recovery is clear, which will continue to compress banks earnings potential. If a recovery is to take hold, do not discount the power of the US consumer, now flush with stimulus cash. Signs of inflationary pressures could lead the Fed to reconsider its stance on low interest rates, a potential boon for bank stocks. However, with global interest rates at 0% or lower, the odds of this scenario remain low for now.
III. Looking Forward
Looking forward we remain cautiously bullish. Consider the “TINA” Effect on stocks – There Is No Alternative – with cash yielding 0% and bonds at historic lows after tremendous Federal Reserve intervention. To put it simply, without the certainty of knowing what the future brings, investors are insufficiently rewarded for overweighting their portfolios to cash and fixed income. Though volatility is widely expected to maintain its grip on the market as we head into a particularly divisive election season with Coronavirus still making headlines, positive news of a vaccine or receding outbreaks would boost market sentiment. Economic data has started to turn more positive and odds of another complete shutdown are low. With eyes starting to focus toward a strong bounce back in corporate earnings in 2021, staying appropriately allocated to your long-term targets is the recommended course of action.
Point View Wealth Management, Inc.’s business activities have changed materially since the last Annual Amendment filing on 3/31/2019. The following is a summary of the material changes to our year end 2019 Brochure:
• We have amended Item 4 with respect to a change in principal ownership, effective September 2019
• We have amended Item 10 of the Brochure to provide affiliation and potential of conflict. We also provide additional information about the ability of our employees to participate in an incentive plan
• We have amended Item 15 to reflect Custody
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As you know, Point View Wealth Management, Inc. continues to manage your investment assets in accordance with your most current designated investment objective. Unless and until you advise us otherwise, in writing, of changes in your financial situation or investment objective(s), we shall continue to manage your assets in the same manner as we do currently.
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IMPORTANT: Point View Wealth Management is an SEC registered investment adviser and a subsidiary of Peapack-Gladstone Bank. This publication is only intended for clients and prospective clients residing in the states in which Point View Wealth Management is qualified to provide investment advisory services. Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product including the investments and/or investment strategies recommended or undertaken by Point View Wealth Management, Inc. (“Point View”) or any non-investment related content, made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or as a substitute for, personalized investment advice from Point View. Historical performance results for investment indices, benchmarks, and/or categories have been provided for general informational/comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results. It should not be assumed that your account holdings correspond directly to any comparative indices or categories. Point View is neither a law firm nor a certified public accounting firm and no portion of the commentary content should be construed as legal or accounting advice.
No deposit investment products are not insured by the FIDC; are not deposits or other obligations of, or guaranteed by, Peapack-Gladstone Bank; and are subject to investment risks, including possible loss of the principal amount invested.
*Sources for Performance Data:
(1) Standard & Poor’s; (2) Wall Street Journal; (3) Combination of Standard & Poor’s and Bloomberg Barclay Index; (4) Lipper Analytics; (5) Wall Street Journal; (6) Morning Star; (7) Bloomberg/Barclays Index