PPG Insights

Quarter 3 2020 Market Overview Optimism Drives Stocks to New All‐Time Highs in the 3rd Quarter

We hope that this letter finds you safe and healthy during these still‐unprecedented times. As I type this, we are still digesting the news that the President and First Lady have both contracted COVID‐19. We wish them both the speediest of recoveries but it is a sobering reminder that this disease can impact all of us. Stay safe, enjoy this time with loved ones and we look forward to seeing you all again when the time is right. 

2020 continued to be one of the most unpredictable years in memory, as markets rose to new all‐time highs in the third quarter despite a resurgence in coronavirus cases. Stocks rallied thanks to a combination of even more accommodative Fed policy, hopes for a COVID‐19 vaccine and a stronger than‐expected economic rebound, before markets declined moderately in mid‐September. 

The third quarter began with a resurgence of coronavirus cases in the United States, as new daily cases of COVID‐19 smashed through levels seen in March and April, eventually topping out at a record 78,871 new cases on July 24th. But unlike March and April, stocks did not decline following the spike in new cases, as state governments enacted more surgical economic shutdowns instead of the wholesale lockdowns that occurred in the first half of the year. That change in strategy, combined with the fact that hospitalization rates and mortality rates of COVID‐19 remained far below March and April levels, helped the stock market look past the increase in cases, and the S&P 500 rose 5.5% in July.

The rally continued in August, aided by the peak and subsequent decline of coronavirus cases in some of the largest U.S. states (California, Florida, and Texas). Additionally, despite the expiration of the CARES Act stimulus, U.S. economic data continued to improve throughout August, powering stocks higher. Led by gains in the tech sector, the S&P 500 hit a new all‐time high in mid‐August and the rally continued through month‐end. The S&P 500 rose 7.0% in August and finished the month in solidly positive territory on a year‐to‐date basis.

The final month of the third quarter, however, provided a reminder that the macro‐economic outlook remains uncertain and markets can still quickly become volatile. The pace of the gains in the tech sector simply wasn’t sustainable. And in the first few days of September, the tech rally became exhausted, the Nasdaq peaked, and stocks began a correction process that would last for most of the month. From a catalyst standpoint, the initial declines were a function of buyer exhaustion, but there were also some incrementally negative events in September that weighed on stocks. First, it became evident that there would be no new economic stimulus bill in September, as both Democrats and Republicans remained far apart in negotiations. Second, economic data began to imply a “plateau” in the economic recovery. Finally, late in the month, coronavirus cases surged in Europe and began to move higher again in certain U.S. states, prompting some concern about a return to various levels of economic lockdown in Europe and the U.S. The S&P 500 declined modestly in September but remained solidly positive for the third quarter.

Looking forward, as we begin the final quarter of this historic year, the market correction of September helped to reset expectations about the numerous unknowns still facing investors in both the short and long‐term. But while the September pullback was a reminder of potential market volatility, we start the final quarter of 2020 at more reasonable market valuations, historically speaking.

We also have a historic election coming in November. We try not to traffic in politics at PPG but we encourage everyone to get out and vote. We try to help our clients lead better financial lives though, and I would take this opportunity to remind everyone that markets focus on profits and economic cycles, both of which are on solid footing. If your candidates don’t win, there’s a good chance the future won’t be as gloomy as you might think it will be. 

In closing I would just like to say that there is plenty of bad news to focus on if you choose to but I prefer to see the bright side in things. By and large consumer balance sheets remain healthy (personal savings rates were at 14% in August!), there are three separate COVID‐19 vaccines undergoing Phase III trials and we still think it’s more likely than not that we see some sort of additional stimulus package to help those that may be struggling. In our last two letters we said “it’s ok to be scared and it’s ok to be nervous. It’s human nature and that statement still stands. But Americans are resilient and we have seen that in spades”. I continue to believe that and hope it resonates with you all too.

Thank you all again for your support and the trust you place in us. We are still mostly working remotely but we are always available for you so please don’t hesitate to call with any questions or just to say hi. We love hearing from you all. Please stay safe and enjoy my personal favorite season this Fall. 

May God bless us all.

Please see our more detailed Market Summary for Q3 and Q4 Market Outlook below.

Q3 Quarter 2020 Market Performance Review

The major U.S. stock indices all extended the rebound that began in the second quarter of 2020, and just like the previous two quarters, the tech‐heavy Nasdaq outperformed the other major indices. Those gains were once‐again driven by the performance of some of the largest, most‐well‐known tech companies in the world, as they are viewed as the longer‐term beneficiaries of changing personal and professional behavior in response to the pandemic. Stocks such as Apple (AAPL), Amazon (AMZN), Google (GOOGL), and Netflix (NFLX) helped send the Nasdaq to new all‐time highs in July, August, and early September.

By market capitalization, large‐cap stocks outperformed small‐cap stocks, a reversal from the second quarter. Large caps outperformed primarily because doubts remain about how quickly the U.S. economy will return to pre‐COVID 19 levels, especially with the expiration of economic stimulus in late July. Since small caps are historically more sensitive to changes in broad economic growth, that uncertainty weighed on small‐cap indices, although they still finished with a positive return for the quarter. From an investment style standpoint, growth outperformed value, yet again, because of strength in large‐cap tech.

On a sector level, 10 of the 11 S&P 500 sectors finished with a positive return for the third quarter. As previously mentioned, tech outperformed, but so did consumer discretionary and materials sectors, as investors rotated into some of the hardest hit sectors in the market on the hope that coronavirus cases would continue to recede and people would venture back out into the economy, visiting malls and restaurants, and traveling sooner than previously expected.

Defensive sectors, those that are historically less sensitive to expected changes in the economy such as utilities, consumer staples, and healthcare, lagged the S&P 500 in the third quarter, although they all posted solidly positive quarterly returns. The only S&P 500 sector to finish with a negative return in the quarter was energy as investors continued to worry about future global demand in the context of still elevated oil supplies.

US Equity Indexes

Q3 Return


S&P 500



DJ Industrial Average






S&P MidCap 400



Russell 2000



Source: YCharts YTD Figures as of 9/30/2020

International markets rallied in the third quarter as European and Asian economies continued to reopen. But many foreign developed markets closed well off the highs of the quarter as coronavirus cases spiked in parts of Europe, particularly in Great Britain. Emerging markets outperformed foreign developed markets thanks to a continued decline in the U.S. dollar paired with strength in Asian markets, as the coronavirus outbreak remains broadly contained in that region of the world.

International Equity Indexes

Q3 Return


MSCI EAFE TR USD (Foreign Developed)



MSCI EM TR USD (Emerging Markets)



MSCI ACWI Ex USA TR USD (Foreign Dev & EM)



Source: YCharts YTD Figures as of 9/30/2020

Commodities also moved higher in the third quarter thanks to a declining U.S. dollar, combined with cautious optimism for an eventual global economic rebound. Oil prices were volatile in the third quarter but still finished with a positive return as OPEC maintained discipline on supply cuts which helped offset concerns about global oil demand expectations. Gold, meanwhile, added to the gains of the second quarter thanks to the aforementioned weakness in the U.S. dollar, still‐recovering inflation expectations and steady bond yields amid the historic global central bank stimulus.

Commodity Indexes

Q3 Return


S&P GSCI (Broad‐Based Commodities)



WTI Crude Oil



GLD Gold Price



Source: YCharts/Koyfin.com YTD Figures as of 9/30/2020

Switching to fixed income markets, the total return for most bond classes was again positive in the third quarter, as bonds now have realized a positive return for each quarter so far this year. The leading benchmark for bonds, the Bloomberg Barclays US Aggregate Bond Index, saw slightly positive returns in third quarter marking the eighth consecutive quarterly gain.

Longer‐duration bonds again outperformed those with shorter durations in the third quarter as global central banks (including the Federal Reserve) reiterated that rates would stay low for years to come. That anchored shorter‐duration bonds, and in turn increased the appeal of higher‐yielding, longer maturity bonds.

Corporate bonds again saw solidly positive returns in the third quarter thanks to the better‐than expected economic recovery. High‐yield bonds outperformed investment‐grade bonds during the quarter, reflecting surprisingly strong corporate commentary during the most‐recent earnings season combined with optimism that a continued decline in coronavirus cases would help business continue to recover.

US Bond Indexes

Q3 Return


BBgBarc US Agg Bond



BBgBarc US T‐Bill 1‐3 Mon



ICE US T‐Bond 7‐10 Year



BBgBarc US MBS (Mortgage‐backed)



BBgBarc Municipal



BBgBarc US Corporate Invest Grade



BBgBarc US Corporate High Yield



Source: YCharts YTD Figures as of 9/30/2020

4th Quarter Market Outlook

Markets and the economy have staged a historic rebound since the late March lows, and while we all welcome this impressive comeback, we enter the final quarter of the year keenly aware that some of the biggest unknowns for the markets and the economy will be resolved positively or negatively in the next three months.

Starting with the obvious, November 3rd is Election Day, and apropos for 2020 this election will be one of the most uncertain in our lifetimes. Beyond the most important question, “Who will win the Presidency?” markets are also focused on whether the Democrats will be able to take control of the Senate. If so, and Biden wins the Presidency, Democrats would control both the legislative and executive branches of government, a scenario dubbed the “Blue Wave” by the financial media. Such a scenario would result in the increased potential for policy changes which would likely create short‐term market volatility.

However, any near‐term volatility associated with a Blue Wave would likely be small compared to the worst‐case scenario for the election, namely that there is no clear winner by the end of Election Day and the election becomes contested which would result in the entire country being dragged through a similar episode of Bush vs. Gore in the early 2000s. In that outcome, we should expect significant shortterm market volatility until a winner is declared, potentially as late as mid‐December.

Unfortunately, the election is not the only source of potential uncertainty and volatility coming in the next three months. Hopes for a COVID‐19 vaccine have helped stocks rally to current levels, and there are now three separate vaccines undergoing final Phase III trials. Those trials will likely reach their conclusion in the coming weeks, perhaps before the election. If those trials fail to produce a viable vaccine candidate, that will also create volatility as markets are expecting widespread COVID‐19 vaccine distribution by early to mid‐2021.

Finally, by the end of the fourth quarter, investors will learn the fate of the stimulus bill currently stuck in Congress. There’s near‐universal agreement the economy could use more stimulus, but the politics of the election, combined with Republican and Democrat differences about how much money should be spent and where that money should go, have prevented stimulus from being passed and delivered to the U.S. economy. Markets expect a stimulus bill to pass by year‐end, and if that fails to materialize, it will create more volatility.

Bottom line, the resiliency of the U.S. economy and markets is both admirable and encouraging, as the economic and market recovery from the worst pandemic in 100 years has been nothing short of extraordinary. That rebound verifies the value of sticking to a well‐constructed, diversified financial plan aimed at achieving long‐term investment goals.

However, our experience has taught us not to be complacent simply because the market has been resilient. So, while we have all welcomed the strong market rebound in Q2 and Q3, the fact remains that a lot of important unknowns will be resolved in Q4, and because of that, there is the possibility for more market volatility during the final three months of 2020.

While short‐term volatility might reappear between now and year‐end, the markets in 2020 have once again demonstrated that a long‐term approach combined with a well‐designed and well‐executed investment strategy can help to overcome periods of elevated volatility, market corrections, bear markets and even global pandemics.

At PPG Advisors, we understand the risks facing both the markets and the economy, and we are committed to helping you effectively navigate this challenging investment environment. Successful investing is a marathon, not a sprint, and even intense volatility like we experienced in the first half of this year is unlikely to alter a diversified approach set up to help meet your long‐term investment goals.

Therefore, in general, it’s critical for you to stay invested, remain patient, and stick to the plan, as we’ve worked with you to establish a custom personal allocation target based on your financial position, risk tolerance, and investment timeline. 

Finally, we thank you for your ongoing confidence and trust and please rest assured that our entire team will remain dedicated to helping you successfully navigate this market environment.

Warmest regards,

Michael F. Dembro
Chief Investment Officer, PPG
Registered Representative, RJFS


The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Michael Dembro and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions. The forgoing is not a recommendation to buy or sell any individual security or any combination of securities or to provide investment advice. Be sure to contact a qualified professional regarding your particular situation before making any investment or withdrawal decision. 

Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification.

International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility. Investing in emerging markets can be riskier than investing in well‐established foreign markets. Investing involves risk and investors may incur a profit or a loss. Investing in commodities is generally considered speculative because of the significant potential for investment loss. Their markets are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. 

High‐yield bonds are not suitable for all investors. The risk of default may increase due to changes in the issuer's credit quality. Price changes may occur due to changes in interest rates and the liquidity of the bond. When appropriate, these bonds should only comprise a modest portion of a portfolio. 

Bond prices and yields are subject to change based upon market conditions and availability. If bonds are sold prior to maturity, you may receive more or less than your initial investment. Holding bonds to term allows redemption at par value. There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices generally rise. 


The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the US stock market. The S&P Mid Cap 400 Index is a capitalization‐weighted index that measures the performance of the mid‐range sector of the U.S. stock market.
The NASDAQ 100 Index is an unmanaged index of 100 of the largest non‐financial domestic companies listed on the NASDAQ Stock Market’s National Market.
The Dow Jones Industrial Average is an unmanaged index of 30 widely held securities.
The Russell 2000 index is an unmanaged index of small cap securities which generally involve greater risks.
The MSCI Emerging Markets Index is designed to measure equity market performance in global emerging markets. The MSCI EAFE (Europe, Australia, Far East) index is an unmanaged index that is generally considered representative of the international stock market. These international securities involve additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability.
The MSCI World Index is designed to measure the equity market performance of developed markets. It tracks 23 countries including the United States.
The Barclays Capital U.S. Aggregate Bond Index is made up of the Barclays Capital U.S. Government / Corporate Bond Index, Mortgage‐Backed Securities Index, and Asset‐Based Securities Index, including securities that are of investment grade quality or better, have at least one year to maturity, and have an outstanding par value of at least $100 million.
The Barclays Capital U.S. Government Bond Index is an index of investment grade government bonds with a maturity date of more than one year.
The Barclays Capital Municipal Bond Revenue Index is an unmanaged index that tracks municipal debt instruments.
The Barclays Capital US Aggregate Corporate Index (BAA) is an unmanaged index composed of all publicly issued, fixed interest rate, nonconvertible, investment grade corporate debt rated BAA with at least 1 year to maturity.
The Bloomberg Barclays U.S. Corporate High Yield Bond Index is composed of fixed‐rate, publicly issued, non‐investment grade debt, is unmanaged, with dividends reinvested, and is not available for purchase. The index includes both corporate and non‐corporate sectors. The corporate sectors are Industrial, Utility and Finance, which include both U.S. and non‐U.S. corporations.