Market Review: Week Ending 9/4/2020
After rising 7% in August and 35% since April, the strongest five-month rally since 1938, the S&P 500 finally pulled back last week declining 2.3% and closed at 3426.1 Technology stocks, the clear winners throughout the COVID-19 period declined the most, as the Nasdaq Composite fell 3.3% while stocks such as Microsoft, Google, Apple, Facebook, and Amazon declined 7-8% off of Wednesday's closing prices.1 The cause of the decline is murky, but following stock splits by Tesla and Apple that lead to a surge in both stocks, there is a sense among many investors (including ourselves) that some froth needed to come out of the market that had reached a speculative stage. The Nasdaq had been trading at a 20-year record of 30% above its 200-day moving average, with the S&P 500 Index Technology sector trading at 28x forward earnings.1 Investors are now faced with the question of whether this pullback is just a healthy pause that refreshes, or something larger with more declines to follow. Fundamentals continue to show signs of a drawn-out economic recovery, with 1.37m jobs added in August and unemployment falling to 8.4%,1 while the ISM Manufacturing Index rose to 56.0, a healthy level that indicates growth.1 Massive fiscal and monetary stimulus has served to boost financial assets, but also supported the real economy, though it has come at a cost to future generations, as US Government debt now exceeds 100% of GDP for the first time since the post-WWII period.1 The issue now for investors appears to be centered around new-found sensitivity for high valuation, though the ongoing stalemate in Congress around another stimulus package and the November elections remain looming hurdles. Through the close Friday, year to date results for the major indices are as follows: S&P 500 7.5%, Russell 2000 -7.1%, MSCI EAFE –5.5% and Bloomberg Barclays Aggregate Bond 6.8%.2
Want to know what we're watching in the week ahead? Check out the FULL REPORT in attachment section below.
Chad Roope, CFA®
Paul Danes, CFA®
1-Morningstar Direct 9/8/20