Todd’s Take on the Market
It was the best August since 1986! Stocks were up five straight months, but can the stunning summer rally continue?
Hmmm? September didn’t start that well—the Dow has fallen 3.34% in the last two weeks, the S&P 500 has fallen 5.76% and the tech-heavy NASDAQ has fallen 7.31% over the last two weeks.
Some would say the selloff is due in part to traders and investors taking some profits off the table from some of the high-flying tech stocks. Some would point to the seasonality weakness in September. Me, I would say that investors are just taking a little profit from Apple, Netflix, Tesla and Google which have gone up like the Eifel Tower in the last three months.
The roller coaster ride in equity markets over the past couple of months has been driven in large part by a handful of technology stocks. While this dynamic has pushed U.S. markets to all-time highs and valuations to extreme levels, we do not see the same fundamental challenges today.
Case in point—the NASDAQ completed a 10% correction in just 3 trading days after setting a new all-time high (September 2). This sets a new record for the fastest 10% correction in history. The old record was 6 trading days from Feb 19 to Feb 27, 2020.
Some big changes to the Dow Jones Industrial Average—Salesforce.com will replace Exxon Mobil, Amgen will replace Pfizer and Honeywell International will replace Raytheon Technologies. The shake-up was prompted by Apple’s decision to enact a 4-for-1 stock split, which would significantly reduce the benchmark’s exposure to the information technology sector.
On the economy, new homes sales blew away the estimates. Housing is hotter than a Louisiana Cajun Festival, Richmond FED came in better than expected and durable goods orders blew through expectations, but Consumer Confidence fell to 84.8, Exp. 93.0, Last 92.6—that’s a 6-year low.
The big story is unemployment. Initial claims came in above 1m again at 1.006m vs. 1m est. & 1.1m in the prior week; continuing claims at 14.5m vs. 14.4m est. & 14.8m in prior week…largest increases in NJ (+11.6k), FL (+11.2k) & NY (+9.9k); largest decreases in CA (-12.2k), NV (-6.8k) & GA (-4.2k).
But the sad fact is—over 27 million Americans are on some form of unemployment aid.
Turning to the FED—Chair Powell’s speech on what the implication for stocks is. Stock traders have a fairly straightforward view of Fed changes:
- Low unemployment not spurring inflation
- Rates lower for longer
- May have higher levels of inflation without Fed raising rates
- Positive for stocks
Home sales are knocking it out of the park, given historically low-interest rates, the buyers are out in force. You can’t stop the housing market.
Looking ahead, we don’t have many earnings to drive the market, but we get more housing data, retail sales and the all-important FED meeting—so stay tuned and we’ll keep you posted.
Todd Day, MBA
Portfolio Manager
Horizon Financial Services, LLC
