We are now into the second half of 2020, which means it’s time for a stock market halftime report. Every year, I use this time to reflect on where we’ve been and look ahead to where we’re going. Never has it felt like we lived several lifetimes in just six months.
Let’s take a look.
Stock market halftime report
Markets are stabilizing after a historic first half of the year when volatility absolutely exploded and our strong economy crashed. The coronavirus pandemic caused massive damage, and we’ll be assessing the extent of it for quite a while.
The Federal Reserve got ahead of the problem and responded in March with some bold steps to bolster confidence. They dumped an extraordinary amount of liquidity on the markets; their response to the Great Recession in 2009 pales in comparison. Though the growth of their balance sheet is one for the records, the Fed Governors are in agreement that the risk is worth it if they can save the country from a devastating depression.
All markets regained ground during Q2, an amazing feat given the damage to the economy. Determined investors poured money into companies they thought would prosper during the pandemic. The SPX 500 is now down less than 3% for 2020 after losing a staggering 20% in Q1. The Dow Industrials are down 9% for the year after losing 23% in Q1, while the Nasdaq is the lone index that is up for 2020. It is higher by 18.6%.
If anything, it appears that Fed support has triggered positive vibes. The stock markets are at/near all-time highs in some cases. The Nasdaq cleared new highs last week on very strong turnover, while the broader SPX 500 is within about 10% of that level. The second quarter was an amazing run for the markets – the since 1998. With rock bottom interest rates and liquidity aplenty, why buy anything but stocks?
What’s next for 2020?
In two words: A lot. It remains to be seen whether or not excitement over buying stocks will continue into the second half of the year. As we’ve already seen, the coronavirus is not going anywhere, and we won’t have a vaccine until early 2021. Plus, the presidential election is in just four short months, and we might have a changing of the guard. That is sure to raise the temperature a bit and increase volatility. Can the market stand another dose of it?
Here at Explosive Options, we are taking things slowly. I urge you to follow our lead and keep plenty of cash on hand, buy index puts to protect your portfolio and stay alert to a change in the trend. The second half of 2020 could be very exciting.
