Welcome to our active management update on the market

We just wrapped up the second quarter of 2020, so I thought it might be a good time to take a look at what’s been going on in the market and what is reasonable to expect going forward.

The second quarter ended on a high note: The S&P 500 Index was up 20.54%, government bonds were up 0.51%, high-yield bonds were up 7.31%, and gold was up 10.11%. This was great for many of Flexible Plan’s strategies and client portfolios, but such returns do not often repeat in sequential quarters. This seems reasonable, of course, but it is easy to be lulled by the existing trend.

The following chart shows an example of what would be reasonable to expect for stocks based on the recent past. The uptrend lines A, B, and C are all at the same angle of ascent. Notice that the initial advances off each of the lows (indicated by the arrows) climb sharply upward. However, over time, the market has tended to gravitate to a more sustainable angle of ascent.

While this is not a certainty, it is reasonable to expect stocks to work sideways for a period, allowing the economic fundamentals to catch up to the markets’ expectations. We will see how this plays out in real time. Should this be the case, the stage will likely be set for stocks to move higher as we approach the end of the year.

Have a great day and a safe and happy Fourth of July weekend.

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