Markets, Economy

Weekly Kickstart (09/07/2020-09/11/2020)

9/8/20 8:00 AM

iStock-626627280.jpgStocks were under pressure last week, as the S&P 500 fell by 2.31 percent to 3,426.96. That still left the benchmark index up 6.07 percent 2020-to-date, and just 4.30 percent below the all-time closing high. Given how relentless the rally has been recently any kind of pullback was unsurprising, as was seeing most of the weakness concentrated in the high-flying technology and communication services arenas, whereas some sectors like financials and materials actually managed to finish last week relatively flat or even higher. A natural question after the violent selloff is whether this is just some needed profit taking and institutional de-risking or the start of a deeper correction. It is of course too early to tell but volatility staying elevated in the near-term would be consistent with historical patterns. Indeed, in terms of seasonality September has been the worst performing month for equities by a wide margin, with the S&P 500 finishing in negative territory 53 percent of the time since 1928, and even after including the positive months the broad index still ended up with an average performance in September of -1.00 percent over the past century. Things improve in October but only slightly (S&P 500 up an average of 0.46 percent since 1928) as investor risk appetite has likely been dampened by lingering memories of the 1929 and 1987 market crashes that both occurred in October, as well as the elevated uncertainty surrounding the Presidential election every four years.

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For some additional perspective we need to look at what just happened in August, i.e. the S&P 500 surged by 7.01 percent, the largest gain since April, the fifth monthly increase in a row, and the best August since 1986. If we look at the other occasions during the past 90+ years when the S&P 500 was up at least 7 percent in August we find that this occurred seven other times. The following September finished lower 71 percent of the time and on average the S&P 500 ended the month down 3.97 percent. The performance statistics look even worse through yearend. However, if we instead look at past occasions when equities rallied every month during the April through August period, also like we just experienced, the S&P 500 continued higher 86 percent of the time, with average gains of 2.17 percent in September and 8.60 percent through yearend (relative to August’s closing price). So there is clearly “something for everyone” (bulls and bears) in the above statistics, which again supports the argument that the price action could get a bit choppier in the months ahead. Fortunately many experienced 401(k) investors can look past any near-term swings in stock prices and stay focused on the long-term objective of preparing for retirement through years of routine, tax-advantaged plan contributions. As for those regular investors less comfortable with another uptick in volatility it may remain beneficial to continue using rallies as opportunities to review their positioning and make sure it is properly aligned with their risk tolerance, nearness to retirement, and other unique variables. Additional assistance is available by consulting with a professional financial advisor and as always, we are here to help with any questions you may have.

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To recap a few of the things we learned about the economy last week, the positives included that productivity growth was revised higher, gauges of manufacturing and service sector activity firmed, wage growth stabilized, corporate layoff announcements decreased, the national rate of joblessness fell by more than anticipated, and the number of Americans claiming unemployment benefits continued to decline. As for the negatives, the nation’s trade deficit widened, home purchase applications slid, construction spending disappointed forecasts, and small business job creation moderated. This holiday-shortened week the pace of economic data slows down but there are still a few important reports on small business, employment, and inflation scheduled to be released.

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What To Watch:

Monday

  • U.S. Holiday: Labor Day

Tuesday

  • NFIB Small Business Optimism Index 6:00 AM ET
  • 3-Yr Note Auction 1:00 PM ET
  • Consumer Credit 3:00 PM ET

Wednesday

  • MBA Mortgage Applications 7:00 AM ET
  • JOLTS 10:00 AM ET
  • 10-Yr Note Auction 1:00 PM ET

Thursday

  • Jobless Claims 8:30 AM ET
  • PPI-Final Demand 8:30 AM ET
  • EIA Natural Gas Report 10:30 AM ET
  • EIA Petroleum Status Report 11:00 AM ET
  • 10-Yr TIPS Announcement 11:00 AM ET
  • 20-Yr Bond Announcement 11:00 AM ET
  • 30-Yr Bond Auction 1:00 PM ET
  • Fed Balance Sheet 4:30 PM ET
  • Money Supply 4:30 PM ET

Friday

  • CPI 8:30 AM ET
  • Quarterly Services Survey 10:00 AM ET
  • Baker-Hughes Rig Count 1:00 PM ET
 

 

Sources: Econoday, FRBSL

Post author: Charles Couch

Disclosures