Pullback buying opportunity?
Market Update 2020-10-05.
The S&P 500 rose last week by 1.5%. Interest rates rose helping banks and consumer discretionary groups to lead. Ongoing talk of another fiscal stimulus program led to a steeper yield curve and economically sensitive stocks led. The S&P is up about 4% on the year. Oil and energy stocks were once again laggards dampened by weakness commodity pricing.
The Presidential debate and polling numbers were all the talk mid-week, but by Friday the financial press was wholly focused on the President and many GOP leaders coming down with the Covid virus.
Economy
The economy continues its path to recovery. On the data side, U.S. home price growth continued to accelerate, up 0.6% in July according to Case-Shiller; pending home sales popped almost 9% in August (thank you Millennial demand) ; consumer confidence jumped 15 points by the Conference Board’s measure for September (thank you stock market recovery); and real personal spending jumped a strong 0.7% in August (thank you 2nd quarter stimulus checks from Congress) . Meantime, headline payroll growth missed expectations at +661k, entirely because of government cuts. Private-sector jobs topped the mark with an 877k increase, which lowered the jobless rate 0.5 ppts, to 7.9%.
You would not know it from worsening investor sentiment. The breadth of economic data, when viewed next to investor sentiment measured by the American Association of Individual Investors, just fell to the zero-percentile relative to history, data compiled by Evercore ISI shows. The relationship suggests that investors have already priced-in souring economic indicators.
Buying opportunity?
Our view remains that any early Q4 pullback, in front of the election, during the dead zone, should be a buying opportunity for substantial gains in Q4 2020 through 2021. According to Leuthold Capital, the discrepancy between rising consumer sentiment and falling investor confidence has historically been a major buying opportunity. Since 1988, markets average a 21% annualized return when consumer confidence climbed to above average while investor confidence stayed this low per data compiled by the Leuthold.
Resources
- Our complete second half outlook has been also posted and can be found by clicking here.
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