2nd Quarter: July 2, 2020

Following the March downturn, the quarter featured an exceptionally fast rebound in stocks. The S&P 500 posted returns of 21%, and the NASDAQ climbed 31% this quarter. Stock prices closed the quarter close to January levels, with the S&P 500 down 3% and the NASDAQ up 13% year-to-date. The rebound occurred while the U.S. economy operated at limited capacity with many sectors at a standstill in April, including airlines, tourism, and much of retail.

Over 500,000 people worldwide have died of the coronavirus thus far. Infection rates declined across much of the world, but governments met with mixed success in reopening their economies. Several U.S. states experienced spikes in infections after reopening, which increased market volatility. The U.S. broke records for confirmed new daily cases in late June, surpassing April’s peak and slowing reopenings. Meanwhile, markets mostly ignored the upcoming U.S. presidential election and the ongoing protests against police brutality and racism—the largest protests in the country since 1968.

New Frontier’s global strategies, as calculated by S&P Dow Jones Indices, performed relatively well during the crisis and rebound. Our 20/80 index, NFGII, returned 6% this quarter and 2% year-to-date. Our 60/40 index, NFGBI, returned 14% this quarter and -1% this year. And our all-equity index, NFGEI, returned 20% and -6% for the quarter and year, respectively. For comparison, the MSCI ACWI index returned 19% and -6% respectively.

The Rebound

The recovery in stocks began with U.S. growth stocks and was followed by value, small cap, and international stocks. Treasury yields remain near historic lows. High-yield and corporate bond yields have returned to more normal levels. The recovery in asset prices was bolstered by all-in monetary policy and government fiscal stimulus. There is, nevertheless, continued market uncertainty. June spikes in U.S. coronavirus infections resulted in multiple days where stock prices whipsawed or declined significantly. The real economy in the U.S. remains under a cloud, with GDP expected to contract by 7% in 2020.1 Much depends on future stimulus efforts, the development of a coronavirus vaccine, and the severity of summer and fall infections.

The stock rebound was uneven. Growth stocks significantly outperformed value stocks, both this quarter and year-to-date. The S&P 500 Growth index posted an 8% return this year, whereas the S&P 500 Value index returned -16%. Although U.S. small cap outperformed large cap this quarter, the Russell 2000 lost 13% year-to-date—10% worse than the S&P 500. U.S. stocks outperformed international equities by 4% this quarter (based on the S&P and ACWI ex-US indices).