Normal Seasonal Upturn in Volatility

Market Update 2020-09-21.

The S&P 500 is down about 2.5% this morning, in the wake of losses across the major global market indexes. Covid concerns are escalating. In turn, Treasury yields are lower along the curve, by more than 5 bps for longer-term maturities, and the US dollar is stronger.  As readers know, I hate these terms, but this is a “risk off” start to the day.

We’ve been anticipating that this time period could produce a correction from all-time highs for most of the year, even pre-Covid. Pre-election volatility is normal. The Investment Committee at Oak Harvest made the decision to rebalance portfolios in advance of this normal seasonal upturn in volatility in order to be better prepared to take advantage of other investors emotional reactions to late-summer and early-fall headline news stories like the ones showing up this weekend.

Stocks

Equity markets fell another 2.5% last week as technology and banks posted the biggest losses.  After a 5-month run from March 24 until payday August 28–Sept 2, the index has gone into consolidation mode, now little-changed over the past month-and-a-half. It is behaving as we expected into the election.

We got a pre-election “October Surprise” a few weeks early this year as on Friday evening Supreme Court Justice Ruth Ginsberg passed away.  This should cause a lot of hand wringing in Washington C and in the press for the next six to eight weeks. However, while this turn of events will be of great significance generally speaking, we remind readers that these politically significant events rarely have long term significance in the narrow context of the stock market.  Surprisingly, even CNBC recently penned a well-written historical perspective of the market’s behavior pre- and post-incubate elections — click here.

Positive forces on stocks and the economy

Not wanting to leave our readers on a down note, here is a list of positive items that we are seeing that we believe should precede a strong post-election move in both the economy and the stock markets:

  • The Federal Reserve reiterated its “lower interest rate” policy is here until 2023. This generally has a positive effect on the markets.
  • Transports (rails and truckers) post a new “recovery high,” signaling the economy is improving.
  • Income and savings rates have risen YTD which bodes well for Christmas spending and 2021.
  • Increased corporate tax rates have proceeded capex accelerations in out years.
  • The 2- to 10-year Treasury spread was 30 Bps at the start of 2020; it currently is at 56 basis points.

Resources

  • Our complete second half outlook has been also posted and can be found by clicking here:

 

Weekly market updates contain general information and expresses views of Oak Harvest Investment Services. Data, Articles, and information cited are believed to be reliable at the time of creation, but are not guaranteed. Nothing in this content is intended as, nor should it be regarded as, personalized investment advice. Strategies and ideas discussed may not be right for you.  Views and opinions expressed may change without notice and do not constitute a recommendation, or an offer or solicitation to buy or sell securities. In addition, Oak Harvest makes no assurance as to the accuracy of any forecast made. Indexes are not available for direct investment and your results may differ. Past performance is not indicative of future results. Investing involves the risk of loss.