One of the worst quarters on record for equity markets was followed by one of the best. After falling a staggering 20% in the first quarter of 2020, the S&P 500 rebounded up almost 20%. The Dow Jones Industrial Average fared worse only gaining almost 18% in the second quarter after falling over 23% for the first three months of 2020. However, it was the tech-heavy Nasdaq that fared best. The index fell about 14% in the first quarter and rebounded a very strong 30% in the second. The Nasdaq is the only major U.S. equity index in positive territory for the year.

The battle for dominance in the markets is being felt on two sides. On the one side, spiking new cases for the coronavirus is causing many states to scale back on plans to re-open their economies. This will create a lag on recovery efforts and runs the risk of another shutdown if the increases in new cases persist. On the other side, the government’s stimulus payments along with extended unemployment benefits and the Fed’s efforts to push interest rates lower are helping families cope and maintain a positive outlook for their future. Equity markets have rebounded sharply but are still in a quandary over how soon and how much the U.S. economy will recover.

In last weeks’ market commentary, I talked about the economy’s recovery beginning to take a “V” pattern. As you remember, with a “V” pattern, the economy rebounds strongly in short order. However, after the strong rebound in May and June, things appear to be leveling off. The chart below is from the Wall Street Journal. It shows activity beginning to slow at the far-right side of the charts.

• More than 40% of S&P 500 companies have pulled their guidance for the remainder of 2020 earnings. The coronavirus pandemic has elevated the level of uncertainty to the point where conditions and projections change daily.
• China’s legislature passed a new measure aimed at curbing dissent in Hong Kong. The law, passed unusually quick and in opaque fashion, is stirring fears among pro-democracy groups.
• The Treasury Department and Internal Revenue Service announced the deadline for filing 2019 taxes will not be extended past July 15. After extending the deadline to July 15 from April 15, many had expected another extension in light of the pandemic.
• British Prime Minister Boris Johnson said he is planning a “New Deal” for the British people. The plans are an attempt to reinvigorate the U.K. economy dealing with the effects of the pandemic. Last weekend, a staple for the English re-opened for business…the British Pub.
• Major U.S. automakers reported sharp drops in second-quarter vehicle sales. Unfortunately, steep discounts and generous financing deals weren’t enough to get consumers to make such a large-ticket purchase.
• The U.S. added 4.8 million new non-farm jobs in June. 70% of those jobs were in the leisure, hospitality and construction sectors. The official unemployment rate dropped to 11.1% from 13.3% the previous month.
• The CBO (Congressional Budget Office) estimates the jobless rate will remain in double digits through the end of 2020.

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