2020 just keeps getting worse. As if a global pandemic and economic collapse weren’t enough, the death of George Floyd under the knee of a police officer on Memorial Day sparked a week of violent demonstrations throughout the United States, the breadth of which rivals the tumultuous summer of 1968. Protests like this are hardly without precedent, and the catalysts are lamentably familiar. What is different this time around is that most of the nation has been trapped at home for months, and over 40 million people have filed for unemployment insurance. This is an incendiary combination. People are already on edge – emotionally, financially and spiritually – and the scenes of looting and violence around the country threaten to push some people over that edge. With a fractious election in November, and the Republican and Democratic political conventions scheduled for August, it could be a long and hot summer.
Equity markets seem immune to these developments so far, focusing instead on welcome trends in the COVID-19 healthcare crisis, and the hope that state and local economies will succeed in cautiously reopening for business. The S&P 500 index has rallied 36% from the lows of late March, with 4.8% of this rally coming in May. Smaller capitalization stocks outpaced their larger brethren in May, posting a total return of 6.5%.