Quarterly Market Update

Fourth Quarter 2020 Market Outlook

After the remarkable rebound in Q3, growth will inevitably slow in the following quarters, but that slowdown could be intensified by several downside risks. Second wave of coronavirus infections during the northern hemisphere winter could lead to tougher social distancing restrictions, which would impair further recovery.

Although supportive fiscal and monetary policies will not be able to prevent a slowdown in response to the second wave of infections, they will be able to continue to mitigate the damage to the private sector and labor markets.

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Quarterly Capital Market Review and Outlook

In the absence of strong Covid-19 lockdown measures, U.S. activity should continue to grow, although at a slower pace, in the last quarter of 2020. BBVA USA Research anticipates U.S. GDP will end the year with a 4.6% decline. Uncertainty around the outlook for 2021 remains elevated and conditional on how effective the next administration and Congress are at tackling the economic costs of the pandemic, and how quickly the economy can adapt to the post-Covid reality without extended monetary and fiscal support.

Economic Outlook

Cool Down

While economic activity has shown signs of recovery following the rollback of social distancing measures in May and June, risks to the downside remain elevated as the number of coronavirus cases in the U.S. continues to rise.

Equity Outlook

The Past, Present, and Future

Despite exceptionally high valuations, the historic low yields on bonds means that spread is still tilting toward stocks. Unfortunately, barring a new pro-growth environment, investors are looking at historically-low expected returns across the board.


Fixed Income Outlook

Range Bound?

Credit markets, backed by the liquidity and open market purchases of the Federal Reserve, continued to stabilize in the third quarter. It would be prudent to assume that 10-year interest rates continue to close under 1.00% for the remainder of the year, and with the Fed backstopping the market, that credit risk spreads should continue to be tame.

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Download a pdf of the entire Fourth Quarter 2020 Market Outlook with charts and graphs.

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Details you need to make a smart decision

BBVA is the trade name for BBVA USA, Member FDIC, and a member of the BBVA Group. Securities products are NOT deposits, are NOT FDIC insured, are NOT bank guaranteed, may LOSE value and are NOT insured by any federal government agency.

This material contains forward looking statements and projections. There are no guarantees that these results will be achieved.

Investing involves risk including the potential loss of principal. There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio in any given market environment. No investment strategy, such as asset allocation, can guarantee a profit or protect against loss in periods of declining values. Past performance is no guarantee of future results. Please note that individual situations can vary.  Therefore, the information presented here should only be relied upon when coordinated with individual professional advice.

Indexes are unmanaged and investors are not able to invest directly into any index.

International investing involves special risks not present with U.S. investments due to factors such as increased volatility, currency fluctuation, and differences in auditing and other financial standards. These risks can be accentuated in emerging markets.

Investments in stocks of small companies involve additional risks. Smaller companies typically have a higher risk of failure, and are not as well established as larger blue-chip companies. Historically, smaller-company stocks have experienced a greater degree of market volatility than the overall market average.

Equity investments tend to be volatile and do not involve the guarantees associated with holding a bond to maturity.

In general, the bond market is volatile as prices rise when interest rates fall and vice versa. This effect is usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.

Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

The investor should note that vehicles that invest in lower-rated debt securities (commonly referred to as junk bonds) involve additional risks because of the lower credit quality of the securities in the portfolio. The investor should be aware of the possible higher level of volatility, and increased risk of default.

Municipal bond offerings are subject to availability and change in price. If sold prior to maturity, municipal bonds may be subject to market and interest risk. An issuer may default on payment of the principal or interest of a bond. Bond values will decline as interest rates rise. Depending upon the municipal bond offered, alternative minimum tax and state/local taxes could apply.

The price of commodities is subject to substantial price fluctuations of short periods of time and may be affected by unpredictable international monetary and political policies. The market for commodities is widely unregulated and concentrated investing may lead to higher price volatility.

Investments in real estate have various risks including possible lack of liquidity and devaluation based on adverse economic and regulatory changes.

Other Sources: Bloomberg; California.gov; Russell.com; First page index returns are calculated on a total return basis using the following indexes: S&P 500 (SPX), MSCI World (MXWO), MSCI Emerging Markets (MXEF), BofA Merrill Lynch U.S. Treasuries 1-10 years, BofA Merrill Lynch U.S. Agencies 1-10 years, BofA Merrill Lynch U.S. Corporates 1-10 years A-AAA, BofA Merrill Lynch U.S. Municipals 1-10 years A-AAA, Russell Top 200 Index, Russell 1000 Index, Russell Midcap Index, Russell 2500 Index, Russell 2000 Index, Credit Suisse High Yield Index (CSHY), MSCI U.S. REIT Index (RMZ Index).