Cognitive Dissonance: Q2 2020 Market Commentary

By: Mark Paccione, CFA, CFP®, BFA™
4 Minute Read

The Nasdaq Composite Index[1] is up 12.7% for the year through June 30, 2020, and the S&P 500 Index[2] has had it’s best quarter in decades, up 20.5% in Q2.[3] All of this occurred during a period that saw record job losses due to the worst global pandemic since the 1918 Spanish Flu, coupled with widespread demonstrations and civil unrest in cities across the United States.

Many investors are left scratching their heads. Markets are difficult to understand in the best of times, yet this past quarter is an extreme case of cognitive dissonance that challenges even the savviest of investors.

So how do we make sense of it all?

One quote from the legendary investor, Benjamin Graham, stands out:

“In the short run, the market is a voting machine, but in the long run, it is a weighing machine.”

In other words, investor sentiment drives markets over short periods of time, while long-term fundamentals and economics drive markets over longer periods of time. Markets took a nosedive in the first quarter as the COVID-19 pandemic forced governments across the globe to take the unprecedented step of shutting-down their economies overnight. There’s nothing in the investor playbook that describes what to do in this scenario.

However, starting at the end of March, several events occurred that improved investor sentiment, allowing the market to regain much of its losses. These events are best understood in the context of three long-term trends, specifically:

  1. QE Infinity
  2. Virtual World vs Real World
  3. Healthcare

QE Infinity

The U.S. Congress and the Federal Reserve Bank quickly introduced the largest stimulus package ever delivered[4] at the end of March. In addition, governments and central banks in Japan and Europe also acted, implementing significant monetary and fiscal stimulus.

Furthermore, it’s well documented that the S&P 500 has been highly correlated with Central Banks’ balance sheets since the Great Financial Crisis.[5] (See Chart 1 that overlays the balance sheet of the federal reserve with the S&P 500.) We believe this correlation will continue in the future and will be a significant tailwind for global equity markets until Central Bank balance sheets begin to shrink, something we do not anticipate to see anytime soon.

S&P 500 Index (Green Line) and U.S. Federal Reserve Assets (Gold Line)

Source: Bloomberg

Source: Cornerstone Macro

Virtual World vs Real World

We live in an increasingly virtual world, where business, socialization, and communication often take place predominantly online. While this shift towards ubiquitous virtualization has been in motion for decades, the pandemic has accelerated the trend. We believe the investment implications of the accelerated move toward increased reliance on virtual platforms favor tech companies, growth stocks over value stocks (as growth stocks tend to be tech-heavy), and specialty sectors like cybersecurity firms. This trend may also partially explain stock market performance in the first half of the year. The tech-heavy Nasdaq Composite is up 10% this year, while the Russell 1000 Value which has 40.0% in financials, energy, materials, and industrials (real world) is down 16.3% YTD thru June 30th.


As the world recovers from the COVID-19 pandemic, we believe healthcare spending will increase, similar to the dramatic increase in defense spending following September 11, 2001. Healthcare investments already had favorable tailwinds given aging baby boomers and the increased healthcare needs of aging populations. We expect that the COVID-19 epidemic will magnify the funds and investments flowing to this vital sector.

Looking Ahead

Investors should remember these long-term trends as we head into the second half of 2020. While we don’t expect the same level of volatility experienced in the first half of the year to continue, investors should expect heightened market fluctuations as COVID-19 continues to be an issue and the presidential election draws near. We strongly encourage investors to focus on long-term trends rather than the short-term noise expected from news headlines.

While the three themes highlighted above were in motion before the pandemic, the quarantine and social distancing we continue to endure in 2020 will only reinforce and strengthen these long-term macro trends. Curi Capital is mindful of this and is pursuing a number of different strategies based on this outlook. Where we have full discretion, we will continue to make proactive portfolio adjustments that best position our clients for an ever-changing investment landscape.

If you have any question whether your portfolio is best positioned for the current market landscape, and more importantly positioned to best achieve your financial goals, please reach out to a member of the Curi Capital team at 984-202-2800.

Please note: All items discussed in this commentary are for informational purposes only. This material should not be considered a recommendation to buy or sell securities or a guarantee of future results. Curi Capital is a registered investment advisor. Registration does not imply a certain level of skill or training. More information about Curi Capital is available in its Form ADV Part 2, which can be found here.

Past performance is not a guarantee of future results. All investment strategies have the potential for profit or loss; changes in investment strategies, contributions, or withdrawals may materially alter the performance and results of a portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be suitable or profitable for a client’s investment portfolio.


[1] The NASDAQ Composite is an unmanaged index of companies which cannot be invested into directly. Past performance does not guarantee future results.

[2] The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.

[3] All index, performance, and sector data sourced from Bloomberg

[4] Meeker, Mary. “Our New World.” Bond Capital, 17 April 20, Page 3.

[5] The Macro Teller. 6 January 20. “The Fed Is Your Best Friend And The Proof Is In The Balance Sheet Pudding.” Seeking Alpha.


Mark Paccione, CFA, CFP®, BFA™

Mark Paccione is Curi Wealth Management, LLC’s, Chief Investment Officer, based in Raleigh, NC.

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