Hello all – we hope you had a nice September.
It wasn’t a very nice month for the markets as stocks closed lower. The Dow was off 2.3%, the S&P declined 3.8%, and the Nasdaq, which has a higher concentration of tech companies, fell 5.2%.
It wasn’t a very nice month for the markets as stocks closed lower. The Dow was off 2.3%, the S&P declined 3.8%, and the Nasdaq, which has a higher concentration of tech companies, fell 5.2%.
We also marked the end to a solid third quarter, with the Dow rising 7.6%, the Nasdaq was up 8.5%, and the Nasdaq gained 11%. Here’s a look at every day of the last quarter:
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The September declines come after the best August performance in decades, with markets reaching record highs.
We wrote last month that stocks appeared expensive and the indicators we followed were at extremely high levels, so it wasn’t too surprising to see stocks pull back a little.
Plus, history isn’t kind to September. It has the distinction of being the worst month of the year for the markets and usually has a negative return.
We wrote last month that stocks appeared expensive and the indicators we followed were at extremely high levels, so it wasn’t too surprising to see stocks pull back a little.
Plus, history isn’t kind to September. It has the distinction of being the worst month of the year for the markets and usually has a negative return.
There wasn’t a lot of news we can point to as the culprit behind the declines. Some negative stories this month included economic data being less-positive than it had been recently. Comments from the Fed saw a negative reaction in the market. Also, the level of Coronavirus cases has risen.
Mostly, though, we think the declines were due to the market getting a little overheated (or overbought, in investment jargon) and investors selling to lock in profits.
Mostly, though, we think the declines were due to the market getting a little overheated (or overbought, in investment jargon) and investors selling to lock in profits.
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We’ll start with the Fed, who held one of their policy meetings this month. We learned nothing new about their policy, which is to keep interest rates low for many years and try to raise inflation (which, as you know, we think will cause more problems down the road).
However, the Fed did state that the economy is in need of more stimulus. They were worried by the stalemate in Congress and the lack of any progress on another round of stimulus. These comments saw stocks move lower as a result.
However, the Fed did state that the economy is in need of more stimulus. They were worried by the stalemate in Congress and the lack of any progress on another round of stimulus. These comments saw stocks move lower as a result.
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Economic data this month was mostly positive, but not as good as it has been recently.
We’ll start with one of the indexes we show often - the Citigroup Economic Surprise Index. It measures economic data in relation to its forecast. If economic data comes in better than forecasted, the index rises, and vice-versa. As you can see in the chart below, it is moving lower after record highs (it’s the light blue line). It tells us that the economy is not as solid as economists think it is.
We’ll start with one of the indexes we show often - the Citigroup Economic Surprise Index. It measures economic data in relation to its forecast. If economic data comes in better than forecasted, the index rises, and vice-versa. As you can see in the chart below, it is moving lower after record highs (it’s the light blue line). It tells us that the economy is not as solid as economists think it is.
Employment remains a concern. The amount of people applying for unemployment remains high and hasn’t improved much over the past month.
The service and manufacturing sectors remain strong:
People continue to spend more, with retail sales rising, although at a slower rate:
Confidence is also rising, amongst both the general population and small businesses:
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Lastly, the level of Coronavirus cases has seen a noticeable uptick. We can’t find data on the severity of the cases and hospitalization levels, which is important since many people have attributed the rising cases to outbreaks on college campuses and these tend to be less severe. Nonetheless, rising cases add uncertainty to the markets.
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Where does the market go from here?
Many of our indicators showed stocks reaching short-term oversold (cheap) levels earlier this month. We think the odds of a rise are greater than a decline at this point.
News out of Washington on a new round of stimulus remains a possibility and will be a boost to the markets.
However, this is a very volatile time of the year for the markets, especially with election approaching, so the markets may remain volatile.
Many of our indicators showed stocks reaching short-term oversold (cheap) levels earlier this month. We think the odds of a rise are greater than a decline at this point.
News out of Washington on a new round of stimulus remains a possibility and will be a boost to the markets.
However, this is a very volatile time of the year for the markets, especially with election approaching, so the markets may remain volatile.
This commentary is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Past performance cannot guarantee results.
