Global Markets – 2Q20 Review
International stocks rallied in the second quarter, with the MSCI EAFE Index gaining 14.9%, the strongest return since the third quarter of 2010. Emerging market stocks also rallied in the quarter (MSCI EM Index returned 18.1%), but international stocks were unable to keep pace with the U.S. markets – as the S&P 500 Index gained…
International stocks rallied in the second quarter, with the MSCI EAFE Index gaining 14.9%, the strongest return since the third quarter of 2010. Emerging market stocks also rallied in the quarter (MSCI EM Index returned 18.1%), but international stocks were unable to keep pace with the U.S. markets – as the S&P 500 Index gained 20.5%. On a style basis, growth stocks remained firmly in the driver’s seat, a trend that has been in place for much of the current cycle.
The first six months of 2020 have been a tale of two quarters for the global equity markets, with stocks selling off in March in response to economic fallout from the COVID-19 virus, before staging a strong comeback in the second quarter. In Cambiar’s first quarter commentary, we noted that event-driven bear markets such as the one that took place in 1Q can often take on a ‘faster in/faster out’ profile. That said, the shift in investor sentiment from one of fear to one of missing out was certainly much quicker than expected, given the considerable uncertainty that still exists with regards to the coronavirus. The 2Q recovery in international stocks resulted in a first-half return of -11.3% for the EAFE Index. With core non-U.S. markets such as Europe, the United Kingdom, and China continuing to emerge from the COVID-19 lockdown, investors have become more constructive on the potential for economic growth to recover in the second half of the year.
While oversold market conditions and announced progress on a COVID-19 vaccine contributed to investors’ optimism towards the equity markets, another contributing factor has been the significant monetary and fiscal stimulus measures by policymakers. Not only did these measures provide a backstop of sorts for further losses, but the accompanying liquidity has made its way into all sorts of risk assets – including stocks. Many countries in Europe have announced large stimulus packages in an effort to re-boot their economies. There is also talk of a separate €750 billion recovery plan that could bring additional investment programs to the region. The key takeaway is that an extraordinary amount of uncertainty regarding the forward economic outlook is being countered by an extraordinary monetary (and fiscal) response.
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