First and foremost, I hope this communication finds you and your loved ones safe and healthy. In many ways, the COVID-19 pandemic has turned the world upside down in recent months, and we at Hennessy have joined the rest of the world in witnessing and experiencing its profound effect on public health, the global economy, and the everyday lives of people around the world. In response to the crisis, we invoked our business continuity plan in mid-March to ensure a smooth transition to remote work for all of our employees, who have been working safely and productively from home. We want to assure our Hennessy Funds shareholders that our operations are uninterrupted and functioning normally.
The year 2020 has been marked by extremes. Through January 2020, the bull market, supported by strong corporate fundamentals, continued to move higher, and investors appeared focused on record low unemployment and strong economic growth. In mid February, the major U.S. market indices hit all time highs, but then, within just a matter of weeks, lost over one-third of their values as the COVID-19 pandemic unfolded. Shelter in place and business closure orders rippled through the nation, causing initial unemployment claims to skyrocket to their highest number in history. The market then rallied back and posted double digit positive returns in April.
For the year ended May 31, 2020, on a total return basis, the Dow Jones Industrial Average was down 10.1% and the S&P 500® Index was down 5.0%. Small cap and mid cap stocks generally fared worse than large cap stocks during the period, and the Financial sector was particularly hard hit as the Federal Reserve aggressively cut the federal funds rate in an effort to stabilize the economy. The Energy sector was crushed by both the sudden loss of demand due to COVID-19 and the oversupply caused by the surprise market share battle between Russia and Saudi Arabia, and the S&P 500® Energy Sector Index ended the period down over 30%.
The COVID-19 pandemic is an unprecedented event, and the duration and full extent of the economic impact is unknown. In the moment, there is always the concern that ‘this time is different.’ But, when you are able to look at past financial, political, and health crises with the benefit of 20/20 hindsight, history has demonstrated that our economy and financial markets have always rebounded and recovered eventually. If you look back to the last market downturn in 2008, economic fundamentals were weak compared to the market in 2020, where the overall underpinnings were—and are still—quite strong. Publicly listed companies today have plenty of cash, with over $5 trillion on balance sheets of the S&P 500® companies alone, and I believe that most will survive and that many may emerge from the current crisis even stronger.
We understand that this market volatility and economic uncertainty is jarring to many investors, and we continue to monitor events and the markets. We remain focused on managing our high-conviction portfolios for the long-term benefit of our shareholders, and we are confident in the time-tested strategies and rigorous research that led to their formation. We encourage shareholders to maintain a long-term investment horizon and to remain focused on long term goals. As always, but especially in these trying times, we are here to support our shareholders, and we thank you for your continued investment and trust. Should you have any questions or would like to speak with us directly, please don’t hesitate to reach out to us.