Global stock markets rebounded during the second quarter and pared losses from the previous quarter. This positive performance follows the global effort to reopen economies under continued social distancing guidelines during the quarter. While we cannot say with certainty what caused markets to move, expansionary monetary policy, increased consumer retail spending, and modest jobs growth in the U.S. in the last two months of the quarter all contributed to market growth.

For the quarter, U.S. stocks (as measured by the S&P 500 Index) gained 20.5%, and non-U.S. developed market stocks (as measured by the MSCI World Ex U.S.) gained 15.3%. Emerging market stocks (as measured by the MSCI Emerging Markets Index) gained 18.1%.

The U.S. Dollar Index, a measure of the value of the United States dollar relative to a basket of foreign currencies, decreased in the second quarter—the U.S. dollar decreased by 1.7% compared to foreign currencies. Over the past 12 months, the U.S. dollar appreciated by 1.3%. The decrease in the dollar is a tailwind to non-U.S. investments held by U.S. investors in the second quarter.

U.S. interest rates remained unchanged during the quarter as the Federal Reserve continues to maintain a target range of 0.0% to 0.25% for the Fed Funds rate. Since changes in interest rates and bond prices are inversely related, continued low interest rates helped increase the quarterly return for many bond asset classes.

 

U.S. Economic Review

The U.S. economy began to contract this year for this first time since 2014. The final reading for first quarter 2020 GDP showed a decline in economic growth of 5.0% and stands in stark contrast to the economic progress of the past 10 years. The unemployment rate finished the quarter at 11.1% after briefly spiking to near 15%. Domestic inflation remains near all-time lows as the Fed’s preferred gauge of overall inflation, the core Personal Consumption Expenditures (PCE) index, stayed below the Fed’s target of 2.0% with a reading of 1.0% in May 2020.

Sources: Bureau of Economic Analysis, Bureau of Labor Statistics, U.S. Department of the Treasury, Morningstar Direct July 2020.

 

Financial Markets Review

Both domestic and international stocks across all size and style categories, as well as

U.S. real estate investment trust (REIT) securities, had positive performance during the quarter. Non-U.S. stock returns were also impacted by the weakening U.S. dollar. During the quarter, U.S. small-cap stocks were the best performing and U.S. REIT securities were the worst performing. U.S. and global bonds continued performance from the previous quarter by posting positive results.

Source: Morningstar Direct July 2020. Market segment (Index representation) as follows: U.S. Large-Cap Stocks (S&P 500 Index), U.S. Value Stocks (Russell 1000 Value Index), U.S. Small-Cap Stocks (Russell 2000 Index), U.S. REIT Stocks (Dow Jones U.S. Select REIT Index), International Value Stocks (MSCI World Ex USA Value Index (net div.)), International Small-Cap Stocks (MSCI World Ex USA Small Index (net div.)), Emerging Markets Value Stocks (MSCI Emerging Markets Value Index (net div)), U.S. Short-Term Bonds (ICE BofA 1-3Y US Corp&Govt TR), Global Bonds (FTSE WGBI 1-5 Yr Hdg USD).