Quarterly Market Review: Q3 2020 

Instead of our usual weekly market review, we put together a Q3 (July – Sep.) review for you to look back on all that happened in the market the past three months.

Just like the rest of 2020, this quarter was filled with surprises. The strong recovery of Q2 continued into Q3, led by big tech. All was going well until the sell-off began in September. Even though September ended as a down month, overall Q3 was positive.

Q3 Gains

Big Tech…Bubble?

Big Tech (Amazon, Apple, Alphabet, Facebook and Microsoft) were some of the best-performing stocks this past quarter. If you include Tesla in that group, the Q3 returns were astronomical. The scariest part is that September was a down month for all these stocks as most of their gains were in July and August.

The thrilling ride up to the top for these stocks was almost too good to be true. Investors starting the quarter waiting for a pullback to enter were left waiting and cursing every day the stocks went up. Some people were reminded of the tech bubble of the early 2000s with what was transpiring.

It’s been a while since major companies announced stock splits and who would have thought in the pandemic, of all times, two would occur. Apple and Tesla each announced stock splits this quarter, only helping their stock prices grow.

Those who have been along for the ride for some time have certainly been happy as big tech and Tesla were the places to be.

Housing Market

In short, the housing market in Q2 was not ideal, but in Q3 it bounced back.

Revenue was down in Q2 for real estate companies because closings were down. People were not going to open houses and therefore not buying. This was especially the case in April and May, and it was also very severe in New York City. But things started to turn around in June and continued this quarter.

Because of record low mortgages, pent-up demand and the increased virtual capabilities, Q3 was good for housing. Home prices were up 4.8% in July, compared to 2019.

A shift in consumer preferences also impacted the housing market. Because of the exodus from cities due to the pandemic, there was increased demand for suburban living. From the increased demand people were willing to pay more, and coupled with low inventory, home prices were up. Also, shifts in consumer preferences included the desire for home offices and more outdoor space.

Additionally, people relocated to different states because of the ability to work remotely from anywhere. Well off consumers accelerated their second home buying, to be in better weather and tax-friendlier states.

Jobs and Unemployment

The monthly unemployment rate has shown a decline for all months in Q3. In July the rate was 10.2%. In September it was 7.9%. As government restrictions have been eased, more people have been going back to work. People also have more incentive to go back to work now that the additional $600 of unemployment benefits have ended. Millions of jobs have been added back this quarter and hopefully the trend will continue into Q4.

Initial claims for unemployment insurance have also declined. Each week in July there were over 1 million new claims, but each week in September has been under 1 million. And this past weekly claims report showed new claims at 837,000. While those figures, and the continuing claims numbers, are still incredibly high compared to pre-pandemic levels, they are heading in the right direction.

Pandemic and Schools

As the pandemic has raged on, the world and the US have passed several gruesome milestones. The US has passed 200,000 deaths and 7,000,000 cases. And worldwide deaths toll over 1,000,000 and cases have eclipsed 34,000,000, according to John Hopkins University of Medicine.

Many pharmaceutical companies are in the last stage of clinical trials for a vaccine. The hope is that a vaccine is discovered before the end of the year and readily distributed.

Some universities and colleges have elected for remote learning, to the displeasure of some students. Others have tried bringing students back on campus but at some schools, cases have soared and caused campuses to close for the semester.

Individual Stocks Worthy of a Shout Out

Honestly, this section could have featured almost any stock. Almost no company had a “normal” quarter. But these three earned a special shout out.

• Exxon Mobil – While still a giant in terms of annual revenue, the stock is not what it used to be. With all forms of traveling down, the demand for oil had plummeted. The energy sector as a whole had a rough quarter. But Exxon Mobil, once a coveted stock for its dividend, was down about 20% this past quarter.
• Nikola – Remember the hype around electric cars in Q2, well it didn’t last long for Nikola. The stock was down around 69% for Q3. A sizable amount of that decline can be contributed to the CEO stepping down and the alleged scandals and controversies.
• Draft Kings – They could not have picked a worse and better time to go public. After IPO’ing this year, the sports world came to a halt at the beginning of the pandemic. But as sports have returned, more users have used their time spent at home to gamble on sports. Their stock price also benefited from the announcement they added Michael Jordan as a special advisor.

Speaking of sports…

Sports

After almost all sports leagues across the world came to a stop, most have resumed play. They have been playing under strange circumstances, mainly with no fans in the stands, but some US cities are starting to allow fans in the stadium at partial capacity.

• The NBA implemented a bubble in Orlando, with minimal issues and now the Lakers and Heat are in the NBA finals.
• The NHL had two bubbles, also with minimal issues. And congratulations to the Tampa Bay Lightning on winning the Stanley Cup.
• Baseball started back up in South Korea months ago. But here in the states, the MLB had a shortened 60 game season. They opted to not use a bubble and had more than their fair share of positive cases and delayed games. Their playoffs have recently started.
• European soccer is back! While I may be in the minority of Americans excited for its return, almost all top European domestic leagues are back in action.
• The NFL is up and kicking. All was going well until this week. After an outbreak of cases within the Tennessee Titans Organization, the league had to postpone next week’s game between the Titans and Pittsburgh Steelers. And who could forget seeing Andy Reid in his fogged face shield to kick off Week 1 of the NFL season.

SPACs and IPOs

SPACs might be one of the newest words in finance that no one truly understands.

Special purpose acquisition companies (SPACs) are a somewhat new way of bringing companies public. They seem to be a simpler alternative to the traditional IPO process and many companies have been taking advantage.

The gross proceeds for SPACs in 2020 are already higher than in 2019 and 2018 combined. Two previously mentioned companies, DraftKings and Nikola, came to market via SPACs.

SPACs may be the new kid on the block, but IPOs are still hanging around. Even in a pandemic, companies are still coming to market via IPOs. Some notable ones this year include Snowflake, which surged 150% on its first day, and Palantir, which IPO’ed this week.

So here’s to Q3. It’s over and in the past. Time to end 2020 with an even better Q4!