The Week in Review: September 14, 2020
September Greets Investors with Volatility
Since bottoming on March 23, the S&P 500 Index has advanced an impressive 60% through its most recent peak on September 2 (St. Louis Federal Reserve data). This includes an advance of over 7% in August, the best August in 34 years.
Aided by strength in the tech sector and the “stay at home” companies, the Nasdaq Composite’s performance has been even more impressive: +75.7% (Yahoo Finance).
We know that when we experience significant rallies, stocks can become more susceptible to volatility and pullbacks, even if the tailwinds that supported shares remain in place.
Today, massive support from the Federal Reserve continues, and the economy is recovering. Yet Congress has been unable to compromise on a fresh round of fiscal stimulus, and the upcoming presidential election looms in the foreground.
Further, for reasons that aren’t fully understood, September has historically been the worst month for stocks.
Since the September 2 peak, the S&P 500 is off 6.7%: September 2 – September 10 (St. Louis Fed), while the high-flying Nasdaq shed 10% in just three days (Yahoo Finance).
Some analysts blame the recent volatility on a Japanese bank that allegedly loaded up on options in tech stocks over the summer (Financial Times and The Wall Street Journal), accentuating summer’s gains and leaving the market more vulnerable to short-term volatility.
If the economy were to stall or contract in the coming months, market action, which is always difficult to forecast over short periods, could become more problematic.
Yet the Fed has pledged to hold interest rates at low levels for a long time, and the economy continues to recover from its low point in April. Moreover, a pullback that occurs while the economic fundamentals are supportive of shares is usually viewed as healthy as it eliminates the speculative excesses that can build up.
Economic visibility remains limited and the pace of the recovery is uncertain, but further economic growth is expected in the fall.
If you have any questions or concerns, feel free to reach out to me, Will, or Tyler.
Two for the Road
The national median price for a home in July of this year reached $304,100. In 1940, the median home value was $2,938. —CBNC, August 27, 2020
As demand for electricity has plummeted, expensive coal has been the first thing to go. The latest estimates suggest that this year, U.S. coal generation will provide less than 18% of the country’s power supply. Analysts predict it could fall to just 10% in five years, down from 50% a decade ago. —Future Crunch, July 24, 2020
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1 - The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.
2 - The NASDAQ Composite is an unmanaged index of companies which cannot be invested into directly. Past performance does not guarantee future results.
3 - The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.
4 - The Global Dow is an unmanaged index composed of stocks of 150 top companies. It cannot be invested into directly. Past performance does not guarantee future results.
5 - CME Group front-month contract; Prices can and do vary; past performance does not guarantee future results.
6 - CME Group continuous contract; Prices can and do vary; past performance does not guarantee future results.