Third Quarter Market Update, Why You Don’t Want to Miss the Market’s Best Days and What’s in Store Going Forward

Written by John B. Cox, CFA, CAIA on October 12, 2020

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The first nine months of 2020 have been called many things, but boring is not one of them. From the onset of the pandemic to the shutdown of many global economies, the rapid decline and then rapid recovery of the U.S. stock market, the year has been unlike any year in recent memory. Now, as we enter the fourth quarter, we have a highly contested presidential election and important congressional races to be decided.

This fall, it may be nearly impossible to tune out all of the things that may cause stress and anxiety—politics, COVID-19, the condition of the economy, daily movements in the investment markets and a variety of other things—but please remember that we are monitoring all of the moving parts and putting them in the context of the current environment, as well as through a longer-term lens.

On any given day, the stock market is just as likely to be down as it is to be up. As an investor’s time horizon is lengthened to one year, five years, ten years and beyond, the probability of having a positive investing experience increases substantially.

Additionally, missing a handful of the market’s best days can meaningfully impact the investor’s returns. In most 20-year periods, missing just 10 of the best days over that entire timeframe can cut the long-term return in half. Since no one can accurately predict when those top 10 days are going to occur, it is virtually impossible to “time the market.”

For the third quarter, the rebound in global equity markets continued, despite a sell-off that occurred in the early part of September. Large company U.S. stocks (S&P 500) had a very strong quarter, returning 8.9%, but were slightly outperformed by the 9.6% growth in Emerging Markets (MSCI Emerging Markets). Mid-size companies (Russell Mid-Cap) also had an impressive quarter, gaining 7.5%. Rounding out the broad market equity returns, International Developed stocks (MSCI EAFE) and U.S. small company stocks (Russell 2000) had comparable results of 4.8% and 4.9%, respectively. Bonds, as measured by the Bloomberg Barclays Aggregate Bond Index, were slightly positive at 0.6%.

The fourth quarter will likely be volatile as markets are impacted over the short term by some of the factors discussed above. However, over the intermediate to longer term, stocks are driven by corporate earnings, interest rates and valuations; therefore, we remain optimistic for 2021 and beyond.

Please remember that past performance may not be indicative of future results. You should not assume that any information provided serves as the receipt of, or as a substitute for, personalized investment advice from Waverly Advisors. This information should be used as a reference only. Talk to your Waverly Advisors, or a professional advisor of your choosing, for guidance specific to your situation.


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