Be careful not to get too excited by record-breaking quarters and headlines...
When the final bell rang at 4 pm EST on Tuesday, June 30 , Wall Street rejoiced in the fact that the major U.S. stock market indices had turned in three straight positive months, leading to record quarterly gains. And it was true, the major U.S. indices did turn in record quarterly gains, including:
- The DJIA recording its best quarter since the first quarter of 1987, with a gain of 17.8%
- The S&P 500 recording its best quarter since the fourth quarter of 1998, leaping 19.9%
- NASDAQ recording its best quarter since the fourth quarter of 1999, soaring 30.6%
Within hours of markets closing the books on the second quarter, the media piled on too, with headlines like:
- U.S. Stocks Finish Best Quarter in More Than 20 Years, Wall Street Journal, June 30th at 4:59 pm EST
- It’s official: This was the best quarter for stocks since 1998, Associated Press, June 30th at 5:47 pm EST
- Dow notches best quarter since 1987, USA Today, June 30th at 6:41 pm EST
But remember, the second quarter rally came after a dismal first quarter and the contrast between the two was dramatic, as the first quarter of 2020 saw:
- The DJIA turn in its worst quarter in history with a 23.2% drop
- The S&P 500 turn in its worst quarter since 2008 with a 20% drop
- NASDAQ turn in its worst quarter since 2018 with a 14.2% drop
Think About the Math
While investors are no doubt thankful for the second quarter’s performance, consider this example:
- You have an investment worth $100 on January 1st and its value drops by 30% in three months.
- On April 1st, your investment is worth $70.
- Over the next 3 months, your investment rises a “record-setting” 40%.
- On July 1st, your investment is worth $98.
Does the 40% feel record-setting to you? Maybe not.
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