close
You are now leaving the peoples.com website and entering an external website.
Ok
Cancel
Important

You must have a People's United Bank personal checking account to access AlwaysChecking.

Don't yet have a checking account?

Explore checking

Skip to navigation Skip to main content Skip to login Skip to footer
People's United Bank, N.A, is now part of M&T Bank. Today, keep banking the way you always do. Learn more
menu
People's United logo with tagline, A division of M&T Bank
  • search
  • Log in Log in
arrow_drop_up
  • Personal
  • Business
  • Other
Invalid Character
Can't Login? Enroll in Online Banking
Invalid Company ID
Invalid User ID
Can't login? Enroll in eTreasury+
  • Online Investing
  • Commercial Credit Cards
  • Client Point
  • Consumer Loan Servicing
  • LockBox Exceptions
  • LockBox Research
  • Personal Credit Card
  • United Bank Credit Card
  • Retirement iPlan
  • Shareholder Services
  • One-Time Loan Payment
  • PCLC Online Payments
Search search
Site Menu
  • Personal
  • Business
  • Wealth
    • Personal
      • PRIORITIES
      • Personal Investing
      • Saving for Education
      • Retirement Planning
      • Trusts, Estates and Charitable Planning
      • Insurance, Income and Annuities
      • Private Banking
      • IRAs
      • CAPABILITIES
      • Investment Strategies
      • Philosophy
      • Process
      • People
      • Systematic Investing
      • Brokerage Services
      • About People's United Advisors
      • About People’s Securities Inc.
    • Institutional
      • PRIORITIES
      • Institutional Investing
      • Retirement Solutions
      • Global Custody and Escrow Services
      • Cash Management
      • Business Wealth Management
      • Private Banking
      • CAPABILITIES
      • Investment Strategies
      • Philosophy
      • Process
      • People
      • Systematic Investing
      • About People's United Advisors
    • Insights
      • OUTLOOK
      • Monthly Insights
      • Quarterly Magazine
      • In the News
      • LEARN MORE
      • Advice
      • Investing
      • Retirement
      • Trust and Estate
    • Working With Us
      • OUR ADVISORS
      • Find an Advisor
      • INVESTMENT TEAM
      • Meet Our Team
  • ATM & Branch
  • Customer Support
  • About Us
  • Careers
  • About Us
  • Careers
  • Personal
  • Business
  • Wealth
  • ATM & Branch
  • Customer Support
Peole's United logo with tagline,  A Division of  M&T Bank
  • Personal arrow_drop_up
    • PRIORITIES
    • Personal Investing
    • Saving for Education
    • Retirement Planning
    • Trusts, Estates and Charitable Planning
    • Insurance, Income and Annuities
    • Private Banking
    • IRAs
    • CAPABILITIES
    • Investment Strategies
    • Philosophy
    • Process
    • People
    • Systematic Investing
    • Brokerage Services
    • About People's United Advisors
    • About People’s Securities Inc.
  • Institutional arrow_drop_up
    • PRIORITIES
    • Institutional Investing
    • Retirement Solutions
    • Global Custody and Escrow Services
    • Cash Management
    • Business Wealth Management
    • Private Banking
    • CAPABILITIES
    • Investment Strategies
    • Philosophy
    • Process
    • People
    • Systematic Investing
    • About People's United Advisors
  • Insights arrow_drop_up
    • OUTLOOK
    • Monthly Insights
    • Quarterly Magazine
    • In the News
    • LEARN MORE
    • Advice
    • Investing
    • Retirement
    • Trust and Estate
  • Working With Us arrow_drop_up
    • OUR ADVISORS
    • Find an Advisor
    • INVESTMENT TEAM
    • Meet Our Team
  • search
  • Log in
arrow_drop_up
  • Personal
  • Business
  • Other
Invalid Character
Can't Login? Enroll in Online Banking
Invalid Company ID
Invalid User ID
Can't login? Enroll in eTreasury+
  • Online Investing
  • Commercial Credit Cards
  • Client Point
  • Consumer Loan Servicing
  • LockBox Exceptions
  • LockBox Research
  • Personal Credit Card
  • United Bank Credit Card
  • Retirement iPlan
  • Shareholder Services
  • One-Time Loan Payment
  • PCLC Online Payments
close

2020 Market Versus Market History

A man in glasses sits with his laptop in front of a bookshelf and rests his head in his hand in thought.
SAVE PDF

THERE’S NO QUESTION THAT 2020 HAS BEEN AN EXTREMELY CHALLENGING YEAR, FROM THE CORONAVIRUS EPIDEMIC AND MASSIVE UNEMPLOYMENT TO A DEEP RECESSION AND HEIGHTENED MARKET VOLATILITY.

Many observers have commented on the apparent disconnect between the stock market and the “real economy.” In the second quarter of this year, US GDP contracted at an unprecedented annual rate of 32%. Yet in the same April-June period, stocks (as represented by the S&P 500) surged 20%, the best Q2 performance in more than 60 years. As we navigate the current market, the research team at People’s United Advisors studied the similarities and differences with prior markets in recessionary periods.


MARKET ≠ECONOMY

First, we examined the historical relationship between recessions and market performance. We looked at all 1-, 3-, 5-, and 10-year forward rolling returns from July 1947 to March 2020. Since GDP data are reported quarterly, we moved the chains forward three months at a time and measured recessionary stock performance from the start of the quarter following the beginning of negative growth. For instance, the recession of 2020 began in the first quarter of this year, so for the purposes of our study, the first forward one-year period for stocks stretches from April 2020 to March 2021. What we found is that market returns following periods of negative GDP growth are higher than the average stock returns over the entire period. Exhibit 1 summarizes the results of our study. For example, forward 1-year returns are four percentage points higher when current GDP is negative, 3-year returns are nearly 3 points higher, and 5-year returns are 2.7 points better. Note also that the market’s returns are negatively correlated with GDP, which is measured in nominal terms. It may seem counterintuitive, but periods of negative GDP growth may be the best time to invest in stocks.

Several explanations may account for why a bad economy does not necessarily mean a bad market. First, during periods of high market volatility, very low expectations are built into the market. People tend, for behavioral reasons, to extrapolate current conditions too far into the future. Eventually, prices revert; thus far, as described below, we have witnessed this reversion particularly in growth stocks.

Second, in response to the current recession, the Federal Reserve andFederal Government acted swiftly and decisively; their monetary and fiscal policies helped to establish a fl oor under the market, which Wall Street viewed favorably (stocks rebounded a remarkable 45% from March 23 to June 8). The scale of stimulus was enormous, and is still playing out. In past recessions the government has also rolled out similar (if smaller) economic stabilizers. Finally, let’s remind ourselves of the basic function of the stock market: Market prices are based on forward expectations, not on today’s headlines or current events. The pricing mechanism attempts to forecast the situation in two, three or even fi ve years from now. Of course, no one can accurately predict the future, but the market tries—and is volatile due to the inevitable gap between prediction and actual future events. In sum, as described above, time and time again we have seen that bad economies don’t necessarily mean bad markets. This year we have, thus far, experienced a similar pattern of a bullish market amid an economic recession.


PATTERNS OF MARKET RECOVERY

  • What is different this time? Several factors, or stock characteristics, tend to explain market returns. We have identifi ed which ones have historically performed well coming out of periods of market volatility. The themes, or factors, that tend to shine are Value (i.e., buy inexpensive stocks), Momentum (buy companies that have performed well recently), Profi tability, Quality (conservative balance sheets), and Size (small caps vs. large companies).
  • We looked back at all market corrections from 1960, and how the fi ve factors cited above performed when exiting these periods of market volatility. In the past, Value, Momentum and small companies tended to perform particularly well following the market bottom and to lead in market recoveries (see Exhibit 2). In 2020, however, we have seen the leadership almost fl ip, with Momentum and Profitability the clear leaders and Value and Size lagging.
  • From January 1 to July 31, 2020, large cap growth stocks (as measured by the Russell 1000 Growth Index) returned 18%, while large cap value (Russell 1000 Value) returned -13%. The valuation gap between small cap value (Russell 2000 Value) and small cap growth (Russell 2000 Growth) is particularly wide, with the small value discount relative to growth having doubled over the course of the past decade. We would not be at all surprised if Value and Size pick up their performance as out of favor segments of the market tend to do. Holding a well diversified portfolio means you are exposed to all of these stock characteristics and don’t need to engage in market timing, which can be dangerous to the performance of a long-term portfolio.

Related Articles

Resolved: No Resolutions; Good Habits Instead

Equity Correlations

People’s United Advisors can help

Come see us about prudent investing.

Red and blue telephone. Call this phone number for help, to speak with an expert or for more information

800-772-8778

People's United Advisors official logo

People's United Bank, N.A. merged into M&T Bank. It is now People's United, a Division of M&T Bank. Although account documentation or other materials may continue to reflect the People's United Bank, N.A. name or logo, new wealth management accounts opened on or after that date will be opened with M&T Bank or it's People's United Advisors Inc. or Wilmington Trust, N.A. affiliates. For more information please go to www.wilmingtontrust.com, reach out to your relationship manager or refer to your account agreement(s).

Investment products are offered through People’s United Advisors, Inc., a registered investment advisor. People’s United Advisors, Inc. is a wholly-owned subsidiary of M&T Bank. Investment products may involve risk, including possible loss of principal.

Investment Products:

• Are Not Insured by FDIC or any Federal Government Agency
• Are Not a Deposit of or Guaranteed by a Bank or any Bank Affiliate
• May Go Down in Value


Form CRS - ADV Part 2A - Privacy Policy - Legal Disclosure

PUA is not soliciting any action based on this material. It is for general informational purposes only. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual investors.

On April 2, 2022, People’s United Bank, N.A. merged into M&T Bank. It is now part of M&T Bank and its former branches and most services will operate as the People’s United division of M&T Bank until we complete the integration of our systems later in 2022. M&T Bank is a Member FDIC, Equal Housing Lender and Equal Opportunity Lender.

By using People's United Online Banking, you agree to the People's United Electronic Services Agreement.

ABOUT
  • About Us
  • Careers
  • Community
  • Press Room
  • Investor Relations
SITES
  • Personal
  • Business
  • Wealth
  • Site Feedback
SERVICE AND SUPPORT
  • Support Center
  • Security Center
  • Find a Branch
  • Mobile Banking
  • Online Banking
TERMS & CONDITIONS
  • Privacy
  • Online Terms
  • Servicemember Information
  • Accessibility Options
Peole's United logo with tagline,  A Division of  M&T Bank