Let’s flash back to March 31 of this year. The planet is in the midst of a highly infectious and dangerous pandemic. Much of the world essentially closes, with the potential for Great Depression era economic statistics to be matched if not surpassed. Yet central banks have sprung into action, with the U.S. Federal Reserve taking the lead in providing liquidity and support to the markets. Congress has already gotten into the act, passing three pieces of legislation in a matter of weeks, providing an unprecedented fiscal boost to the economy. Still, what an opportune time to check out, make that solo trans-Pacific sailboat crossing you had been planning, or doing a months-long mountain top retreat to work on those meditation skills.
And as you arrive into port (or trek down the hillside) on June 30, what would you have expected to find? The pandemic is still with us, although lockdowns have diminished, perhaps no real surprise there. But we’d venture to guess that the financial market news would be quite a shocker. For starters, the stock market produced the highest quarterly return in 21 years. And how about corporate bond returns of 8.98% despite record breaking amounts of new issuance and widespread downgrades? Not to be outdone, high yield returns of 10.18% despite a rising default rate that at least one rating agency expects to double through the first quarter of 2021. And what a roller coaster Treasury yields must have been on? Turns out that the 10-year yield closed out the quarter virtually unchanged, with only one modest spike in rates during the period. Welcome to the new world of investing, where the influence of central banks and government intervention in the markets and economy takes center stage!
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