Markets, Economy

Weekly Kickstart (10/05/2020-10/09/2020)

10/5/20 8:00 AM

iStock-626627280.jpgStocks rebounded last week, as the S&P 500 rose by 1.51 percent to 3,348.42. That was the first gain since August and enough to leave the benchmark index up 3.64 percent 2020-to-date, and just 6.49 percent below the all-time closing high. As expected the price action was quite choppy during the past few trading sessions but the bulls ultimately won out thanks in part to a combination of generally better-than-expected economic data and renewed optimism about the next fiscal relief package (CARES 2.0). Despite the welcome bounce the S&P 500 still ended the month of September down 3.92 percent. However, this did not prevent the broad index from finishing the third quarter of 2020 up 8.47 percent, and 50.31 percent above the March panic low. As for our regular seasonality update, it is good to now have September in the rear-view mirror because it has historically been the worst performing month for equities. Looking ahead, the S&P 500 since 1928 has risen 60 percent of the time in October, with an average monthly gain of 0.46 percent (full sample). Things look similarly positive for November from a historical standpoint, but additional volatility from the election cycle might have added some noise to the figures.

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For an alternative perspective we can try to narrow things down by only looking at what happens when the S&P 500 falls in September by at least as much as it just did. This has occurred on 20 occasions during the past 90+ years, and the broad index has both risen and fallen 50 percent of the time in the following October, resulting in an overall average loss of 0.59 percent. Better than coin flip odds can be found when looking at Q4 performance, with the S&P 500 rising 65 percent of the time three months following a September loss similar to what we just experienced. However, when losses did occur they tended to be quite large, enough so to even keep the average Q4 performance in negative territory (-1.67 percent). Of course past performance does not guarantee future returns, and stocks could very well rise in the final three months of 2020, but such statistics may also provide another reason for some regular investors to take advantage of the latest bounce in equities through reviewing their positioning prior to the November elections and other potential volatility catalysts the market still has to overcome in the near-term. Moreover, periodic reviews of your positioning can help identify 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 week, the positives included that real estate values continued to climb, pending home sales jumped, construction spending exceeded forecasts, the small business job creation rebound accelerated, the national unemployment rate fell by more than expected, consumer confidence surged, and U.S. gross domestic product (GDP) in the second quarter of 2020 was revised higher. As for the negatives, mortgage purchase applications fell, regional manufacturing gauges sent mixed signals, corporate layoff announcements increased, the Federal Reserve’s preferred inflation metric surprised to the upside, nonfarm payrolls growth disappointed forecasts (albeit due mainly to schools not reopening), and the number of Americans making first-time claims for unemployment benefits remained elevated. This week the pace of economic data slows down but there are still a few important reports on the U.S. service sector, credit utilization, and employment scheduled to be released, along with the potentially market-moving release of the minutes from the latest Federal Open Market Committee (FOMC) meeting.

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What To Watch:

Monday

  • PMI Composite Final 9:45 AM ET
  • ISM Services Index 10:00 AM ET

Tuesday

  • Goods and Services Trade 8:30 AM ET
  • JOLTS 10:00 AM ET
  • 3-Yr Note Auction 1:00 PM ET

Wednesday

  • MBA Mortgage Applications 7:00 AM ET
  • EIA Petroleum Status Report 10:30 AM ET
  • 10-Yr Note Auction 1:00 PM ET
  • FOMC Minutes 2:00 PM ET
  • Consumer Credit 3:00 PM ET

Thursday

  • Jobless Claims 8:30 AM ET
  • EIA Natural Gas Report 10:30 AM ET
  • 30-Yr Bond Auction 1:00 PM ET
  • Fed Balance Sheet 4:30 PM ET
  • Money Supply 4:30 PM ET

Friday

  • Baker Hughes Rig Count 1:00 PM ET
 

 

Sources: Econoday, FRBSL

Post author: Charles Couch

Disclosures