Markets, Economy

Weekly Kickstart (09/14/2020-09/18/2020)

9/14/20 8:00 AM

iStock-626627280.jpgStocks remained under pressure last week, as the S&P 500 fell by 2.51 percent to 3,340.97. That still left the benchmark index up 3.41 percent 2020-to-date, and just 6.70 percent below the all-time closing high hit earlier this month. Equities actually attempted to rebound last week but the bounce appeared to run out of steam after news hit that “CARES 2.0” negotiations had once again broken down. This is a problem in part because many small business owners have expressed concerns about what will happen to the recovery without additional relief, and the fact that any evidence of economic weakness could take months to start to show up in the data makes it less likely politicians will feel any urgency to reach an accord the closer we get to November. Moreover, the news will increasingly be dominated by the election in the months ahead and this is one of the reasons why in prior Kickstarts we have suggested that volatility could start to pick up again. To this end September has definitely not disappointed because the tech-heavy NASDAQ has so far moved higher or lower by at least 1 percent almost every single day, a streak of outsized moves not seen since March when major indices were nearing the bear market bottom.

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Will such price action again mark another trough for stocks? It is too early to tell with all the near-term volatility catalysts still looming over the market, but some of the rotation we have seen recently should be encouraging for those in the “healthy correction” camp. A recent J.P. Morgan analysis even argued that “It appears that some of this price action may have been technical in nature, as positioning was extended and valuations were rich. Furthermore, credit spreads have been relatively stable and the outlook for earnings has not materially changed; this suggests that fundamental risks are limited, and that this change in market behavior should not necessarily be viewed as a harbinger of things to come.” Further, SunTrust Advisory research observed that in recent decades new bull markets have typically experienced three to four pullbacks of at least 5 percent within their first nine months, while our current bull market that started in March has so far only seen two such declines. This means that even if a new multi-year bull run is just getting underway additional drawdowns should not be surprising. Of course remaining calm while markets fall is not exactly easy, especially for those with an allocation mix that is inappropriate for their unique situation, e.g. nearness to retirement and risk tolerance. Periodic reviews of your positioning can help identify these potential portfolio imbalances ahead of time rather than waiting until the market has already moved against you and your options feel much more limited. 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 (holiday-shortened) week, the positives included that home purchase applications rose, inflation pressures continued to stabilize, total job openings surged, small business owner optimism firmed, and Americans paid down credit cards for the 5th consecutive month. As for the negatives, the hiring rate slowed, and the number of people collecting unemployment benefits stopped declining. This week the pace of economic data picks up slightly with a few important reports on manufacturing, housing, and consumers scheduled to be released, along with a potentially market-moving announcement on monetary policy from the Federal Open Market Committee on Wednesday.

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What To Watch:

Monday

  • Nothing significant

Tuesday

  • 3-Yr Note Settlement
  • 10-Yr Note Settlement
  • 30-Yr Bond Settlement
  • FOMC Meeting Begins
  • Empire State Manufacturing Index 8:30 AM ET
  • Import and Export Prices 8:30 AM ET
  • Industrial Production 9:15 AM ET
  • 20-Yr Bond Auction 1:00 PM ET

Wednesday

  • MBA Mortgage Applications 7:00 AM ET
  • Retail Sales 8:30 AM ET
  • Business Inventories 10:00 AM ET
  • Housing Market Index 10:00 AM ET
  • Atlanta Fed Business Inflation Expectations 10:00 AM ET
  • EIA Petroleum Status Report 10:30 AM ET
  • FOMC Announcement 2:00 PM ET
  • Fed Chair Press Conference 2:30 PM ET

Thursday

  • Housing Starts and Permits 8:30 AM ET
  • Jobless Claims 8:30 AM ET
  • Philadelphia Fed Manufacturing Index 8:30 AM ET
  • EIA Natural Gas Report 10:30 AM ET
  • 2-Yr Note Announcement 11:00 AM ET
  • 5-Yr Note Announcement 11:00 AM ET
  • 7-Yr Note Announcement 11:00 AM ET
  • 10-Yr TIPS Auction 1:00 PM ET
  • Fed Balance Sheet 4:30 PM ET

Friday

  • Quadruple Witching
  • Current Account 8:30 AM ET
  • Consumer Sentiment 10:00 AM ET
  • Leading Indicators 10:00 AM ET
  • Baker-Hughes Rig Count 1:00 PM ET
 

 

Sources: Econoday, J.P. Morgan, Truist, Bloomberg, CNBC, FRBSL

Post author: Charles Couch

Disclosures