Date: October 10, 2020
As I mentioned last month, “If the trend is broken and selling volume increases, I will trim positions to increase cash in the portfolios.” We were very close to that happening as you can see on the chart below. The orange line is the 50-Day moving average which the market fell below on September 17. It was trading in that area for six days before moving back above the green base line of the upward rising regression channel. The market found support and is now moving higher again. It looks as if it wants to get back to the all-time that the Nasdaq 100 EFT hit at 303.50 on September 2nd before the sell-off. With all that is happening in our country it is surprising that the markets are showing so much continued strength. Could the strength be due to the renewed hope for an additional stimulus package?
The chart above is of the Nasdaq 100 Exchange Traded Fund, Symbol “QQQ”
The VIX Index closed at 25.00 on Friday, October 9. It is slightly lower than last month. As the VIX declines in value the markets tend to rise. As I mentioned last month, I expect the VIX to stay at higher levels until after the Presidential election.
Percent of stocks above their 50 day and 200 day moving average. 78% of stocks are above their 50-day moving average and 73% of stocks are above their 200-day moving average, which is higher than last month. The confirms the markets gaining strength. When 60% of the stocks are above their 200-day moving average, it is a bullish sign.
Federal Reserve: The next FOMC meeting is November 5, 2020.
Unemployment Rate: Total nonfarm payroll employment rose by 661,000 in September, and the unemployment rate declined to 7.9 percent, the U.S. Bureau of Labor Statistics reported October 2nd. These improvements in the labor market reflect the continued resumption of economic activity that had been curtailed due to the coronavirus (COVID-19) pandemic and efforts to contain it. In September, notable job gains occurred in leisure and hospitality, in retail trade, in health care and social assistance, and in professional and business services. Employment in government declined over the month, mainly in state and local government education.
Inflation Rate: The annual inflation rate for the United States is 1.3% for the 12 months ended August 2020 as compared to 1.0% previously, according to U.S. Labor Department data published on September 11, 2020. The next inflation update is scheduled for release on October 13.
Overall, the markets gained some strength from the recent lows and are looking to move back to the recent highs set in early September.
In this month’s recap: Stocks dropped during the month as investors worried about stalled fiscal stimulus talks in Washington, the upcoming election, and new coronavirus cases in Europe.
Monthly Economic Update
Presented by Guy Woolley, October 2020
U.S. Markets
Stocks dropped in September as investors worried about stalled fiscal stimulus talks in Washington, the upcoming election, and new coronavirus cases in Europe.
The Dow Jones Industrial Average, which lagged this year slipped 2.28 percent. The Standard & Poor’s 500 Index lost 3.92 percent and the Nasdaq Composite declined 5.16 percent.1
Tech Stocks Under Pressure
After a strong rally in August, investor sentiment quickly turned negative as technology stocks dragged down the overall market.
The retreat in the technology sector gathered steam as the month wore on, sending the tech-heavy Nasdaq Composite into correction territory over a three-day span following a recent record high. A correction is defined as a decline of at least 10 percent but not more than 20 percent from a recent high.2
A Few Bright Spots
The month did offer moments of optimism, however, that sparked brief rallies, such as an increase in merger and acquisition deals and further reported progress on a COVID-19 vaccine. However, concerns about the November election, the fading hopes for a fiscal stimulus bill, and an increase in European COVID-19 cases weighed heavily on investor sentiment.
As September came to a close, the market cut its losses, surging on the final two days of trading as legislators appeared to reopen fiscal stimulus talks.
Sector Scorecard
All 11 industry sectors were lower in September, with losses in Communication Services (−6.61 percent), Consumer Discretionary (−3.15 percent), Consumer Staples (−3.71 percent), Energy (−17.56 percent), Financials (−6.35 percent), Health Care (−3.87 percent), Industrials (−2.04 percent), Materials (−1.52 percent), Real Estate (−4.05 percent), Technology (−6.03 percent), and Utilities (−0.37 percent).3
What Investors May Be Talking About in October
The housing sector has been a bright spot in a challenging year and has seen strong consumer demand thanks to historically low interest rates.
Home building and home sales have set new records in recent months, while home builder confidence is at an all-time high. The National Association of Home Builders/Wells Fargo Housing Market Index posted a reading of 83 out of a possible 100 in September, well above its previous record high of 78.4,5
Housing accounts for 15 percent of the nation’s gross domestic product, so investors may watch for the sector to retain its momentum in the fourth quarter and into 2021.6
T I P O F T H E M O N T H
Take a look at what is on your credit report. You are entitled to one free copy from each credit bureau annually. Why not have a look?
World Markets
International markets struggled amid more coronavirus cases in Europe and concerns over the tensions between the U.S. and China.
The MSCI-EAFE Index fell 2.20 percent in September.7
European markets were broadly weaker. France dropped 2.91 percent, Germany lost 1.43 percent, and the U.K. slipped 1.68 percent.8
Pacific Rim stocks were mixed as Australia fell 4.04 percent and Hong Kong declined 6.82 percent. Japan notched a solid gain, tacking on 9.68 percent.9
Indicators
Gross Domestic Product: The final reading of the second-quarter GDP showed an annualized decline of 31.4 percent.10
Employment: The unemployment rate dropped to 8.4 percent as employers added 1.4 million jobs in August.11
Retail Sales: Retail sales growth slowed in August, rising only 0.6 percent as the supplemental unemployment benefits expired at the end of July. The benefits helped buyers in prior months.12
Industrial Production: Industrial output rose 0.4 percent, below economists’ expectations of a 1 percent increase.13
Housing: Housing starts fell 5.1 percent after sharp gains in the previous three months. Single-family home starts increased by 4.1 percent, but the overall result was dragged down by a 22.7 percent decline in multi-family starts.14
Existing home sales rose 2.4 percent from July and were 10.5 percent higher than August of last year.15
Sales of new homes rose to their highest level in almost 14 years, posting a 4.8 percent increase from the previous month.16
Consumer Price Index: Consumer prices jumped 0.4 percent in August, led by the sharpest increase in the cost of used cars and trucks in more than 50 years. On a year-over-year basis, inflation rose 1.3 percent.17
Durable Goods Orders: For the fourth straight month durable goods orders rose, increasing by 0.4 percent in August. New orders for nondefense capital goods, excluding aircraft, jumped 1.8 percent.18
Q U O T E O F T H E M O N T H
“Vision is the art of seeing things that are invisible to others.”
JONATHAN SWIFT
The Fed
The Federal Reserve signaled that interest rates would likely not increase until 2023 following its two-day Federal Open Market Committee (FOMC) meeting that ended on September 16.19
Fed officials also stressed the importance of additional fiscal stimulus.19
Fed officials adjusted their outlook for unemployment, predicting it would average between 7 and 8 percent in the final three months of the year. Previously, Fed officials had expected unemployment of between 9 and 10 percent in the final calendar quarter of 2020.19
|
MARKET INDEX |
Y-T-D CHANGE |
September 2020 |
|
DJIA |
-2.65% |
-2.28% |
|
NASDAQ |
24.46% |
-5.16% |
|
S&P 500 |
4.09% |
-3.92% |
|
BOND YIELD |
Y-T-D |
September 2020 |
|
10 YR TREASURY |
-1.24% |
0.69% |
Sources: Yahoo Finance, September 30, 2020
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends. 10-year Treasury real yield = projected return on investment, expressed as a percentage, on the U.S. government’s 10-year bond.
T H E M O N T H L Y R I D D L E
What is no sooner spoken than broken?
LAST MONTH’S RIDDLE: Sally promised Kate today that she will tell Kate a big secret on the day before four days from the day after tomorrow. If today is Saturday the 13th, on what day and date will Sally tell Kate her big secret?
ANSWER: Thursday the 18th.
Guy Woolley may be reached at 415-236-5364 or guy@freedomcapitalmanagement.com
www.freedomcapitalmanagement.com
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CITATIONS:
1. The Wall Street Journal, September 30, 2020
2. MarketWatch.com, September 12, 2020
3. FastSet Research, September 30, 2020
4. CNBC.com, September 22, 2020
5. EyeOnHousing.com, September 16, 2020
6. Federation of American Scientists, October 2, 2019
7. MSCI.com, September 30, 2020
8. MSCI.com, September 30, 2020
9. MSCI.com, September 30, 2020
10. CNBC.com, September 30, 2020
11. The Wall Street Journal, September 4, 2020
12. The Wall Street Journal, September 16, 2020
13. The Wall Street Journal, September 15, 2020
14. CNBC.com, September 17, 2020
15. CNBC.com, September22, 2020
16. CNBC.com, September 24, 2020
17. CNBC.com, September 11, 2020
18. The Wall Street Journal, September 25, 2020
19. The Wall Street Journal, September 16, 2020