Stocks struggled late last week and the major indexes closed slightly down for the week as some large technology companies, ones that had been resilient to COVID-19 market effects, saw their share prices fall as the pandemic disrupted supply chains and created an unexpected rise in fulfillment expenses. The market also became wary of rising U.S.-China tensions as the Trump administration elevated an attack on China’s handling of the virus.
The markets trended up as the week began. The primary rationale for optimism continues to be the easing of containment measures on a global basis. Outside the U.S., economies in regions from Europe to emerging markets are slowly beginning to reopen. Within the U.S., state and local governments continue to work through phased-in reopening plans.
The relative strength of the stock market in recent weeks has surprised many as the personal and economic damage created by COVID-19 has yet to cease. Why has the market been so resilient? First, the magnitude and swiftness of the monetary and fiscal stimulus pumped into the economy has been impressive by any measure. Second, pharmaceutical companies are working around the clock to develop treatments and vaccines, giving rise to optimism that the pandemic may be made manageable soon. Lastly, while there were some hiccups, technology companies, which are a significant part of the market, held up well throughout the year. Technology has infiltrated so many aspects of daily life – from streaming videos to telecommuting to banking and more – that the sector is likely less economically sensitive than it once was.
While the markets have been generally trending in a positive direction, day-to-day volatility may remain elevated. Diversification can help to dampen the effects of market volatility while still allowing portfolios to participate in rallies as they occur. Please feel free to contact my office to discuss any questions you may have about market volatility, diversification or your portfolio.
Stay safe and be well.
Market comments are based on the S&P 500, DJIA and NASDAQ indices. Market indices listed are unmanaged and are not available for direct investment. Past performance is no guarantee of future results. Investing involves risk and the potential to lose principal.
Diversification is an investment strategy that can help manage risk within your portfolio but it does not guarantee profits or protect against loss in declining markets. (05/20)