What does this mean for investors?
Given the Fed support and the concentrated rally, it has been harder to read what’s going on in the market, partially answering the question of how the stock market could become so unhinged from the real economy. Following a bear market low, it is not unusual for a relatively small group of stocks to lead the S&P 500 out of the trenches. As the market continues to work through the uncertainties in the COVID-19 crisis, it is likely to include more volatility. Going forward, we will need clarity on the containment of the virus and a successful strategy to reopen the economy to drive broader participation from a wide range of stocks and sectors.
In the meantime, it is important investors maintain diversity in their portfolios. Diversification across asset classes as well as within equities is the most prudent way to manage portfolio risk over the long term, as it tends to lower volatility and reduces the likelihood that any one stock or a small group of stocks can severely damage overall portfolio returns.
¹FactSet, Data as of 3/23/2020 - 5/15/2020
²Morningstar, Data as of 1/1/2020-5/15/2020
⁵FactSet, Data as of 5/15/2020
⁶FactSet, Data as of 3/23/2020 - 5/15/2020
⁷FactSet, Data as of 5/15/2020
⁸Ned Davis Research: https://www.ndr.com/invest/products/INF20_17.PDF?card=3&source=WKLYCRH_EST202005011.HTML&downloadType=EL
⁹Morningstar, Data as of 1/1/2020-5/15/2020
10FactSet, Data as of 5/15/2020
11FactSet, Data from 1/1/2020-5/15/2020
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This report is for informational purposes only, and is not a solicitation, and should not be considered as investment or tax advice. The information has been drawn from sources believed to be reliable, but its accuracy is not guaranteed, and is subject to change.
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100149 | C20-16064 | 05/2020 | EXP 05/31/2021