< Back

Fidelity® Wealth Services


A Message from the Investment Management Team at Strategic Advisers LLC

Brian Enyeart, CFA,* President, Strategic Advisers LLC – First Quarter 2020

First Quarter 2020: Market Summary


Global stocks fell amid concerns surrounding the impact of the COVID-19 outbreak on corporate earnings. Investment grade bonds rose, but experienced unusual volatility.


We believe the U.S. economy is likely to contract, as efforts to manage the spread of the virus have led to a sharp drop in demand for goods and services from consumers and businesses.


We’re closely watching efforts to manage the spread of the virus and for signs of economic activity, as positive developments may lead to greater stability in stock and bond markets.

Preparing and positioning portfolios for the onset of recession

First Quarter 2020: Account Summary

U.S. Stocks:

  • Higher allocations to growth, quality, and large company stocks provided some stability in the face of U.S. stock market turbulence.

International Stocks:

  • Exposure to international quality and growth stocks helped protect portfolios from sharper declines in international developed stock markets.
  • China stocks held up relatively well and helped to stabilize performance within emerging markets.


  • In spite of moments of increased volatility, increased exposure to investment grade bonds helped provide stability.

Last quarter, U.S. stocks fell 21.0%1 while bonds experienced unusual volatility amid market concerns that efforts to suppress the spread of COVID-19 would lead to slower economic growth. This market volatility led to a difficult quarter for many client accounts. However, over the last few years, we had reduced exposure to riskier assets such as stocks within client portfolios. We took these actions because we believed economic growth was maturing and the United States was moving into the late phase of the business cycle. As a result of these actions, well-diversified client accounts experienced less volatility than they may have otherwise.

We now believe that the U.S. economy is at the onset of a recession. Therefore, towards the end of the quarter, we further reduced exposure to both U.S. and international stocks within well-diversified client accounts, while allocating more to investment grade bonds. Historically, stocks have experienced greater volatility during recessions, followed by strong recoveries as the economic backdrop has improved. Meanwhile, bond investments may offer stability for investors during periods of stock market volatility.

Finding opportunities to rebalance client accounts

Periods of heightened market volatility also provided opportunities for us to rebalance client accounts. Our disciplined rebalancing process helped to:

  • Keep your investments aligned to your financial goals.
  • Discover opportunities to buy stocks at lower prices after market declines. These opportunities may lead to investment gains in an eventual stock market recovery.

Growth, quality, and large company stocks provided stability within US markets

Over the last few years, we have emphasized allocations to growth, quality, and large company stocks.

Here’s how those areas of the market performed during the quarter:

  • In sharp contrast with the broader stock market, Growth stocks fell by only 14.1%2. As expected, value stocks dramatically diverged from growth stocks returning -26.7%3. Value stocks tend to struggle at the onset of recessions, as investors express near-term doubts about the outlook for some of these companies.
  • Quality stocks, which are companies with low debt and stable earnings, also outperformed the U.S. stock market with a return of -15.0%4. Quality stocks typically hold their value better versus the broader market during periods of volatility.
  • Finally, larger companies often perform better than smaller ones during recessions and other periods of market stress. Over the quarter, large companies outperformed small companies by a notable 10.4%5.

Quality, growth, and China stocks provided stability within international stock investments

Over the quarter, international developed markets and emerging markets trailed U.S. stocks, returning -22.8%6 and -23.6%7, respectively.

Within our allocations to international stocks:

  • In developed markets, our increased allocations to quality and growth stocks protected client accounts against more severe stock market drops. Quality and growth stocks outperformed international developed markets by 7.3%8 and 5.3%9 respectively.
  • In emerging markets, exposure to China provided some protection from large declines in emerging market stocks. China stocks have held up relatively well when compared to the rest of world. In fact, China stocks experienced the highest relative performance for the quarter within emerging markets.

Bonds provided stability in spite of brief periods of volatility

Updates on Tax-Sensitive Accounts11

  • Market volatility in the first quarter led to significant opportunities for tax-loss harvesting, which could lead to tax savings for investors in the future.
  • Municipal bonds experienced very unusual volatility during the quarter, but largely held their value in the end.
  • Federal Reserve actions and government fiscal stimulus may provide stability for states and municipalities.

A combination of lower interest rate policies by the U.S. Federal Reserve and falling investor expectations for U.S. economic growth led to lower bond yields. Lower yields helped investors as bond prices rose.

  • Although investment grade bonds returned 3.2%10 over the quarter, they did experience moments of intense volatility when some investors sought to sell bonds to raise cash. In spite of these peaks in volatility, investment grade bonds still provided more stability than stocks over a turbulent quarter.
  • We continued to reduce high yield bond exposure over concerns that a slower economy could lead to some challenges for high yield issuers. Within high yield bonds, we increased exposure to more conservative high yield bond managers, which may help reduce volatility.

Our outlook: following COVID-19 developments, support from policymakers, and economic indicators

We are closely following efforts to manage the outbreak, and the overall economy, for signals that some of the economic disruptions due to the virus may be behind us. Some key areas that we continue to monitor include:

  • Hospitalization rates from COVID-19
  • New developments in therapies to treat virus patients, or efforts toward developing an eventual vaccine
  • Efforts by governments and central banks to support the global economy
  • Trends in jobless claims and consumer spending to measure economic activity

We believe markets may remain volatile. The COVID-19 outbreak has led to uncertainty surrounding the pace of economic growth and the outlook for corporate profits. However, we have experienced markets like these before in the face of many past economic challenges. We are confident that the U.S. economy will eventually find its footing, leading to an eventual early cycle expansion. Through it all, we remain committed to taking a patient, disciplined approach to managing your investments, while seeking opportunities to help you achieve your financial goals.