Markets Stop Downward Slide

September 28, 2020

Market Update 2020-09-28.

U.S. equity futures are up the morning of Monday, 9/28 about 1.5%.  The S&P 500 is down 8% from the record high reached Sept. 2 and was down by as much as 11% at Thursday’s intraday low, marking a brief trip into correction territory. However, it hasn’t closed at or beyond the 10% threshold that marks an official correction. Despite Friday’s positive session, all major indices except for the Nasdaq lost ground for the week. That left September as a month to forget for the Bulls. Despite a volatile last week, the S&P 500 ended only -0.6% lower to stay positive on the year, up +2.1%; mainly driven by Technology 24.5% (Apple) and consumer discretionary 20.0% (Amazon).

Technology, consumer staples, and utilities led gains, while health care, materials, and energy weighed heavily on the averages.  The energy sector had the largest percentage drop last week (a constant theme for years now), down 10.2%, followed by a 5% slide in materials and a 4.8% decline in financials. The two positive sectors were technology which rose 2% and utilities, up 0.3%.

Markets finish strong

Despite four straight weekly declines, the markets finished strong last week on the back of short covering, and “puts” in the options market that had been bought after the markets broke down below its 50-day moving average.

Last week’s drop came as COVID-19 cases in Europe elevated while hopes faded for US lawmakers to reach an agreement on economic stimulus prior to the November election. The recent death of Ruth Bader Ginsburg has many Congress members now focusing more on filling the Supreme Court seat than on reaching a pandemic relief package.

Consumers and homebuyers, largely Millennial-based, is driving the broader recovery. Home sales soared to a new 14-year highs in last week’s reports.  We discussed this pent-up demand in late March, when many in the financial media were parroting the “Great Depression, Round 2” line.

Positive forces

Not wanting to leave our readers on a down note, here is a repeat of a list of some positive items that we are seeing. These preview and should precede a strong move in both the economy and the stock markets. A move that is likely to start before “election concerns” are wrapped up in Q4 2020:

  • On September 16, the Federal Reserve reiterated its “lower interest rate” policy is here until 2023. This generally has a positive effect on the markets.
  • Transports are signaling the economy is improving.
  • Income and savings rates have risen YTD which bodes well for future consumer spending.
  • Historically, increased corporate tax rates have proceeded capex accelerations in out years. The 2–10 year Treasury spread was 30 Bps at the start of 2020; currently it is at 56 basis points.
  • We have recent data (2012, 2016) for the economy and stock markets under both Dem and GOP Presidents. Outcomes over the subsequent 15 months were nearly identical for both.

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.