Entering the Dead Zone

Market Update 2020-08-17. Rising volatility is ahead, but equity markets rose modestly last week, led by foreign stocks and the value biased Dow Jones Industrial Averages.

The S&P 500 rose 0.7% last week, led by cyclical groups industrials and technology.  This index sits roughly 1% below its late February all-time high.  We will say it again, “can you say V-bottom”? This pushed the S&P 500 index to up 5.5% year to date and almost 21% year over year off an easy comp in the summer of 2019.

The Nasdaq continues to lead the markets supported by ultra-low long-term interest rates. The NASDAQ sits the year up 23% year to date.  Ultra-cyclical groups such as energy and banks are the year to date laggards, down almost 35% and 17% respectively.

Rising volatility… is normal

rising volatility and choppy market aheadWith the second quarter earnings reports ending this week, the market will move into the dead zone in Q3 come September. It will shift its focus back to a combination of the Corona virus case path and the November Presidential election race.  Expect volatility to rise throughout Q3 as true real-time economic data slows and short-term traders focus on headlines not real data.  As we have discussed each of the past two years, rising volatility during this period is normal during late summer!

We will be focusing our educational effort during the next three months on the historic precedent of different election outcomes, and what opportunities are likely to arise.  As always, some sectors and industries will likely gain with tailwinds and others will face headwinds.  We will try to educate our readers in advance of the election, of what has historically happened under different administrations.  Tune into our weekly podcasts for those updates.

Resources

  • Our complete second half outlook has been also posted and can be found by clicking here.
  • Find more information and help on our YouTube Channel.

 

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