September Market Recap
October 1, 2020
Those suggesting that a furious summer rally left stock prices ripe for a pullback were at least somewhat vindicated in September. Equities entered the month at or near all-time highs before downward pressures pushed them lower.
The S&P 500 fell in four consecutive weeks – the longest such streak in more than a year – and registered a peak-to-trough decline of more than 10%. The NASDAQ, for a change, posted the worst monthly performance of the three major benchmarks as Tech stocks proved more vulnerable to the selloff.
Only two of the 11 sectors in the S&P booked gains in September, those being Materials (+1.3%) and Utilities (+1.1%). Energy (-14.5%) continued what has become an historic year-to-date collapse, having now lost nearly half its value (-48%) in the first nine months of 2020. Communication Services (-6.5%) and Technology (-5.4%) also suffered legitimate losses last month.
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Speculation about potential vaccines for COVID-19 is understandably popular, and some encouraging rumors led equities to all-time highs early last month. It was reported on September 2 that the Centers for Disease Control and Prevention told state governments to prepare for vaccine distribution by early November. That launched the S&P near 3,600, the NASDAQ beyond 12,000, and the Dow above 29,000 for the first time since February.
From there, however, it was a downhill ride. The NASDAQ fell 10% in just three trading days. While the sudden selloff was partially attributable to stretched valuations and staggering performance since the March lows, it was also due to a realization that more stimulus from Congress was no longer inevitable, and certainly not imminent.
The major US indices continued to drift lower for most of September before bouncing a bit in the final few days of the third quarter. The latest reports on stimulus negotiations suggest a gap of roughly $600 billion in competing proposals; $2.2 trillion (from Democrats) compared to $1.6 trillion (from Republicans). As of month’s end, the House of Representatives and US Senate had yet to find common ground.
Government stimulus (or its absence) matters, of course, because we are still in a global pandemic and new cases of coronavirus are again increasing in many US states. We remain, in other words, far from the finish line. The economic recovery, meanwhile, has definitely slowed.
Disney, Allstate, American Airlines, and United were among the companies who recently announced plans to fire or furlough a combined 60,000 workers as the pandemic drags on, acting like a wet blanket on a US economy desperate for a spark. The latest employment data from the US Labor Department is expected to show that cumulatively, around 50-60% of total American jobs lost earlier this year have been recovered.
The Federal Reserve and its chairman, Jerome Powell, assumed a quieter role in September than in previous months, although the Fed continues to support financial markets through steady asset purchases. As of mid-September, the Fed had accumulated $1 trillion worth of mortgage bonds since March and now owns nearly one-third of all mortgage bonds outstanding.
Powell told Congress that the US economy needs additional support and still has a long road ahead to fully recover. The economic path, in Powell’s words, “continues to be highly uncertain.”
Bond yields remained mostly unchanged from a month earlier. The 10-year US Treasury finished September yielding 0.68%. Gold prices fell roughly 4% as the US dollar strengthened meaningfully for the first time in six months. Gold is down nearly 10% from the all-time highs it established in early August.
International equities outperformed US stocks last month. Non-US Developed Markets lost roughly 2%. Emerging Markets were down only 1%.
More and more investors seem concerned about the financial risks posed by uncertain election outcomes. September 29 brought the first Presidential debate, which gave us more interruptions than insight. Despite being widely panned afterward as a parody of our country’s political process, the fact that stocks moved higher the following day displayed the resilience of markets in the face of political uncertainty.
Some argue the predictably low taxes and deregulation offered by our incumbent President would be advantageous. Others suggest Democratic control would boost markets because it will lead to larger government stimulus. Our perspective is that nobody knows for sure, and that equities have proven successful in all types of political climates.
Resist the urge to make financial decisions based on your political preferences.
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