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S&P GIVI® Japan and Major Single Factors Q2 2020

U.S. Equities Market Attributes June 2020

U.S. Equities Market Attributes May 2020

U.S. Equities Market Attributes April 2020

S&P Latin America Equity Indices Quantitative Analysis Q1 2020

S&P GIVI® Japan and Major Single Factors Q2 2020

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Tianyin Cheng

Senior Director, Strategy Indices

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Izzy Wang

Analyst, Strategy Indices

The S&P GIVI (Global Intrinsic Value Index) Japan underperformed its benchmark index, the S&P Japan BMI, by 6.09% in Q2 2020. Since its launch in March 2012, the S&P GIVI Japan has underperformed its benchmark index by 62 bps per year, with a tracking error of 2.68%.

Following the sharp decline in Q1 2020, the Japanese equity market rebounded by 11.77% in Q2 2020, as measured by the S&P Japan BMI. However, the S&P Japan BMI posted -8.31% YTD. As in other major markets, the recovery in Q2 2020 was mainly boosted by government stimulus and good news in the fight against COVID-19. This quarter, the Japanese government approved a record stimulus package equaling about 40% of GDP to prevent COVID-19 from causing further economic deterioration. After lifting the National State of Emergency in late-May, the Japanese economy started to gradually reopen. While partially encouraged by these positive signs, investors stayed cautious amid the uncertainties around U.S.-China tensions and a second wave of COVID-19 cases. 

As the economy gradually reopened, almost all sectors showed signs of rebounding. Materials, Consumer Discretionary, and Industrials, which were severely hurt in Q1 2020, had strong comebacks, with double-digit returns this quarter. Hotels and Industrial REITs contributed the most to the mild recovery in Real Estate, while Office provided some drag. Information Technology was the bestperforming sector, due to increased demand for hardware and software support in the new normal of internet-based life. Health Care and Communication Services, the two sectors whose performance benefited from the COVID-19 crisis for providing healthcare products and supporting social distancing practices, respectively, continued to lead in Q2 2020 and reversed the loss from the previous quarter. Utilities was the only sector that posted a negative return, largely due to the dire economic projection. 

The underperformance of the S&P GIVI Japan in Q2 2020 was mainly due to the selection effect in Industrials and Information Technology.  

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U.S. Equities Market Attributes June 2020

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Howard Silverblatt

Senior Index Analyst, Product Management

KEY HIGHLIGHTS

MARKET SNAPSHOT

The number of new daily cases of COVID-19 reported in the U.S. rose to over 47,000, a record level; over 2.6 million people in the U.S. were infected (10.5 million globally), with over 127,000 deaths (511,000). Within the U.S., progress on combating the virus remained uneven (and unsure), as New York City, which was hit first and became an epicenter, started to open up, but several states reported significant increases in infections and hospitalizations (Arizona, California, Florida, and Texas). Some states considered reversing openings (Florida, Texas, and others have) and reinstating some restrictive procedures, which have become highly political. In a sign of the regional turnaround situation, New York (along with Connecticut and New Jersey) said it would require out-of-state visitors from “hot spots” (16 specific states) to quarantine for two weeks, similar to what some states did to those visiting from New York earlier in the year. Globally, the EU said it would reopen its boarders to nonessential workers from 14 countries (and possibly China), as it barred the U.S., citing the increasing COVID-19 reports. The bottom line for the virus is that no one knows, as for some, the situation has become more correlated with their political views than with science. The bottom line for the market, which believes in the market, is that eventually there will be a workaround (a cure, a treatment), and that the economy will recover. To that end, as stated, several areas that were hit early have improved, but others that were not as severely affected are now starting to be, with their reaction still in progress.

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U.S. Equities Market Attributes May 2020

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Howard Silverblatt

Senior Index Analyst, Product Management

KEY HIGHLIGHTS

MARKET SNAPSHOT

The grand Reopening of the U.S. began in May—come, buy, spend (if you have it; otherwise use your stimulus money), and enjoy the solitude of six feet as you scan your iPhone to pay (or for you oldies, use that archaic piece of plastic that you have not been using lately).  If by some chance you need to cough (as they told Arlo Guthrie), “turn your head.”  The U.S. started to reopen as the Memorial Day holiday kicked off not just the start of summer, but a return to what will be the new normal, with no one knowing what that will be, but most wanting to at least try.  The anticipated opening has been what has kept the S&P 500 up—36.06% from its recent March 23, 2020, low (down 10.10% from its Feb. 19, 2020, closing high).  Anticipation has been nice (did someone say, “Buy on anticipation, sell on reality?”), but now reality will start, along with the learn-as-you-go process and slow (or fast—we don’t know) continuance of opening; the key questions are, “If you open, will they come and spend?” and, “If they come, will they get sick?”  At this point, an opening, any opening, is welcome, as the Street has mostly dismissed 2020 earnings and is looking toward recovery signs, which are expected to be seen in a turn up in earnings in the second half of 2020—and that will be the true reality test for the Street.  At 27.7 times the expected 2020 EPS, there is no question as to why everyone is wearing a mask, as the Street is priced for 2021 (and even then it is high).  If we see the upward turn in the second half, then the current levels may be justified, but if not, the Street will need to reprice, and for those of you who quickly forget, the last repricing was from the Feb. 19, 2020, high to the March 23, 2020, low—a 33.9% fall.  In the “putting your money where your mouth is” reopening, the first major IPO since the virus spread to the U.S. was done, as insurance broker SelectQuote (SLQT) IPOed at USD 20, closing the month at USD 27.52, up 37.6%—ah, the good old days.

The U.S. market went into May after its best month (12.68%) since January 1987 (13.19%), as the focus changed to the start of the Reopening of the U.S. (most started on May 18, 2020, ahead of the Memorial Day holiday), with regions varying their approach and depth.  The initial key issue for the reopening in May was if consumers would come back, and June’s key issue will be if they would be safe to do so and spend.

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U.S. Equities Market Attributes April 2020

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Howard Silverblatt

Senior Index Analyst, Product Management

  • The S&P 500® was up 12.68% in April, bringing its YTD return to -9.85%.
  • The Dow Jones Industrial Average® gained 11.08% for the month and was down 14.69% YTD.
  • The S&P MidCap 400® increased 14.06% for the month and was down 20.20% YTD.
  • The S&P SmallCap 600® returned 12.60% in April and -24.49% YTD.

The U.S. market went into April focused on survival, and it exited focused on the Reopening of the U.S. There are now two key questions: “Is it safe?” and “If you open it, will they come?” Markets wanted to believe, and reacted positively to the idea of a light at the end of the tunnel, even as few knew how far away the light was (and some warned that it was not light, but an oncoming train). Data for Q1 2020 showed the impact of the virus, as Q2 2020 was expected to be worse. For Q1 2020, 57.0% of the market value has reported earnings, with 177 of the 260 issues beating the 27.4% lowered estimates, and 165 of the 256 beating on sales. The Q2 2020 estimates declined 41.2% from year-end 2019, as Q3 2020 declined 27.4%, Q4 2020 declined 18.6%, and full-year 2020 declined 28.5%; 2021 estimates have started to decline, off 9.0%. With 44.1% reported, buybacks are running stronger than expected for Q1 2020.

As for Q2 2020, don’t expect anything, and you won’t be disappointed. For Q2 2020 dividends-to-date, 19 S&P 500 issues increased, 12 decreased, and 12 suspended, for a net change of USD -13.4 billion (USD -17.4 billion YTD). As for employment, it was a month to survive, as the six-week total Unemployment Claims was 30,307,000, with the employment report (May 8, 2020) expected to show an unemployment rate in the area of 20%. Overall, however, trading was more focused on perception and fundamentals, compared with the knee-jerk reactions of late February and March. May, however, could see some of that volatility come back, as the market reacts to each news item on the Reopening of the U.S.


S&P Latin America Equity Indices Quantitative Analysis Q1 2020

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Michael Orzano

Senior Director, Global Equity Indices

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Silvia Kitchener

Director, Global Equity Indices, Latin America

S&P Latin America Equity Indices Commentary: Q1 2020

This new decade has not really started well—if only we could jump straight to 2021. Amid the overwhelming impact of the COVID-19 pandemic on public health and on the economy, perhaps what resonates best is that “this too will pass.”

U.S. equities, which serve as a guidepost for the global economy, surpassed prior all-time highs in volatility. VIX®, also known as the “fear gauge” has not reached similar highs since the global financial crisis (GFC) in 2008. The higher the uncertainty, the higher the option prices that are used to calculate VIX. The precipitousdrop in oil prices following a price war between Russia and Saudi Arabia threatened a collapse of the Energy sector, adding to the uncertainty in the U.S. and globally. Unemployment in the U.S. continued to rise—in the last two weeks of the quarter, nearly 10 million American applied for unemployment benefits following the shutdown of thousands of businesses. It’s expected that this number is only a sign of further job losses to come and that unemployment filings will double in the coming weeks. Many impacted businesses are in the travel, entertainment, restaurant, retail, and real estate industries.

What about Latin America? Like a tsunami that started in Asia then ravaged Europe, COVID-19 and its effects are now flooding the Americas. Despite the closing of borders and quarantines, the pandemic continues to sweep the continent. Governments have started to institute policies to minimize the public health and the economic impact. Similar to the U.S., which has approved a USD 2 trillion stimulus package to help mitigate the effects of the pandemic, Brazil has approved around USD 30 billion. Peru is also reviewing a similar package. In Chile, the president approved a USD 12 billion package. In Argentina, the World Bank will lend USD 300 million in emergency funds. Colombia and Mexico have not yet announced any major economic measures at this time. The question many ask is, will all this be enough? In the midst of uncertainty, the answer depends on how quickly the pandemic recedes and life goes back to normal.

According to S&P Global’s rating analysts, it is expected that the outbreak will push Latin America into a recession in 2020, recording its weakest growth since the GFC. They have also forecast that GDP will contract by 1.3% in 2020, before bouncing back to a growth rate of 2.7% in 2021. Finally, the length of the recession—although potentially worse in some countries—may be much shorter: only two quarters are projected versus six quarters during the GFC.1

Latin American markets underperformed global markets during the first quarter. All gains from the previous years were completely wiped out. The S&P Latin America 40 posted the worst quarter on record, ending at -46% in USD terms. In comparison, the S&P 500®, which also had the worst quarter since 2008, lost 20%.

No economic sector was spared in the rapid downturn, as companies in important industries like energy, mining, and financials were hit hard. The average stock price drop for members of the S&P Latin America 40 was around -45% for the quarter. The Energy sector of the S&P Latin America BMI performed the worst among the 11 GICS sectors (-61%). Health Care had a difficult quarter (-45%), but thanks to its strong past performance, it lost a lot less for the mid-term periods. Looking at individual markets in local currency terms, Argentina’s S&P MERVAL Index lost 41.5% for the quarter. Brazil and Colombia followed, returning -36% and -32%, respectively, as measured by the S&P Brazil BMI and the S&P Colombia Select Index.

In a sea of red for the quarter, in Mexico some indices were able to stay in the black. The S&P/BMV IPC Inverse Daily Index, which seeks to track the inverse performance (reset daily) of the S&P/BMV IPC, gained 23%. The following three indices also did well: the S&P/BMV MXN-USD (26%), the S&P/BMV China SX20 Index (9.4%), and the S&P/BMV Ingenius Index (9.4%). The latter two indices are designed to measure international stocks trading on the Mexican Stock Exchange, and their strong performance is largely driven by the depreciation of nearly 20% of the Mexican peso relative to the U.S. dollar in Q1.

The first quarter is done, and the second quarter is looking gloomy. Comprehensive relief efforts are underway to help citizens and support our economies, and we can only hope for the best while we continue to tread carefully.

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