U.S. markets have been rallying over the past two weeks as the economic news around the world may be bottoming. Renewed fears about tensions between the U.S. and China, this time over Hong Kong, brought volatility back into the market for the first time in several weeks. Investor anxiety also hit record highs, as personal finance concerns mount over rising bankruptcies and foreclosures.

This week, we are again featuring Katie Koch, from Goldman Sachs Asset Management, and Ryan Detrick, LPL Financial Senior Market Strategist, with their perspectives.

While we are sharing strategists' recommendations, every investor needs to make their own decisions based on their risk tolerance and personal situation. The comments herein are for your perspective, but should not be taken as investing advice.

Katie Koch, Co-Head of Fundamental Equity, Goldman Sachs Asset Management

Market Rotation From Growth to Value, and Large to Small

Last week was a good week for equities, but the headline number of S&P 500 being up 3% doesn’t tell the whole story. The combination of promising news on vaccine development and the lack of any significant outbreaks in states which have opened up gave the market confidence to broaden its rally. As such, we would characterize last week as a reversal week in the US markets with Value – which is more sensitive to the recovery – meaningfully outperforming Growth, as well as small caps outperforming large caps. 

Since 4/28/2020
Since 4/28/2020.

That played out with the Russell 1000 Value index up 4%, outperforming its growth counterpart by around 100bps last week. On the small-cap side, the Russell 2000 Value index was up 9% and appreciated 8%, while the S&P 500 was up 3% over the week showing it’s significant outperformance relative to large caps. We continue to think that small-cap stocks are a better representation of the general confidence in the U.S. economy’s trajectory.

Energy and Industrials Outperform Tech

In terms of sector performance, Energy and Industrials were the best performing sectors, which is a stark contrast to what we have witnessed with Healthcare and Tech leading the YTD market rallies. Financials still remain a wildcard – which is the only group to underperform in both the market decline (Feb 19-March 23) and have also trailed the subsequent rally. If performance in this sector was stronger, we would have more confidence in the durability of the recovery. On the consumer side, it will be interesting to watch the positive impact of re-openings for retailers, which are comping positively year-over-year. This is, however, in contrast to the department stores, where mall traffic is more of a driver of sales and are opening down 40% YoY - which is likely a reflection of people not wanting to be in a mall setting as well as a focus on value.

Economic and Geopolitical Concerns Remain

Moving forward, we’re paying close attention to a few outside factors and how they will affect US equity markets, including the Chinese markets, which remain in-flux, specifically around renewed Hong Kong tensions; the social divide that is increasing as unemployment continues to rise, which is juxtaposed against increasing confidence that big corporations are benefiting from recovery money; and the upcoming US presidential election and the candidates’ platforms on both healthcare and corporate tax rates.

Ryan Detrick, LPL Financial Sr. Market Strategist

Gold Continues to Shine

Gold has done quite well so far in 2020, up more than 12% year to date versus the S&P 500 Index which is down about 10%. We started to warm to the yellow metal late last year and continue to think it can serve as a potential hedge in a well-diversified portfolio for suitable investors.

From COVID-19, to massive monetary stimulus, to historically lower yields, to potentially negative fed funds rates down the road, there are many reasons to think gold could continue its recent strength. Gold based for years before breaking out last year. This is a strong chart from a technical perspective and eventual new highs over the coming years could be quite likely.

Chart courtesy LPL Financial
Chart courtesy LPL Financial.

We continue to think equities could be due for a well-deserved break, and gold could be one place that could benefit a portfolio should that happen. For more of our investment insights and why some equity weakness could take place soon.