Todd’s Take on the Market
Stocks struggled for direction last week as both the economic recovery and prospects for further fiscal stimulus appeared to be on uncertain footing. The Dow closed flat on the week only down 0.01%, the S&P 500 fell 0.6% and the NASDAQ fell 0.53%. September is living up to its reputation of being a bad month for stocks as we have logged three down weeks in a row.
Some are saying the Generals are off the battlefield—the NASDAQ 100 fell sharply over the last week and they have been what has been leading the market higher (Facebook, Apple, Amazon, Netflix and Google).
U.S. 10-Year Treasury yields were mostly unchanged this past week, following mixed economic data and the Fed’s dovish outlook. Immediately after the Fed’s meeting, the Treasury yield curve steepened, potentially reflecting disappointment that the Fed did not indicate plans to shift asset purchases into longer-dated Treasuries. The Fed kept rates unchanged and indicated they would maintain rates near zero for at least three years until employment recovers and inflation is near 2%. An improved economic outlook saw the Fed upgrading 2020 GDP estimates from -6.5% to -3.7% year-over-year.
On the economic front, the Empire State Index was up 13.3 points to 17, reversing the decline in August. The University of Michigan’s September read for consumer sentiment rose to 78.9, a six-month-high (+4.8pt), though still far below February’s levels that were north of 100. Consumers were more optimistic about buying conditions for durable goods, but inflation expectations declined slightly from August.
The U.S. labor market showed sluggish recovery as the week ending September 12th saw 860k Americans filing for initial jobless claims. Though first-time unemployment claims fell marginally, extending a trend of week-over-week declines, they remain at historic highs.
August retail sales rose by 0.6% relative to July, marking the slowest monthly increase since sales troughed in April, when most of the economy was shut down to stop the spread of COVID-19.
Homebuilder sentiment soars to record highs, but lumber prices raise a red flag. In the end, they will raise prices to accommodate higher lumber prices.
So, now it is down to whether or not we have a resurgence of COVID cases and whether or not we go back to shutting down the economy, again. We are also facing the elections—and If the current ‘expert opinion’ plays out, this will be the first time since 2000 that we will wake up the morning after a Presidential Election and not know who the winner is. How that impacts the markets will be anyone’s guess, but it promises to make what has already been a crazy year even crazier. Perhaps the silver lining to all the expected uncertainty around Election Day is that most people are now expecting it, and when everyone expects one thing from the market, the opposite usually occurs.
Stay tuned and we’ll keep you posted.
Todd Day, MBA
Portfolio Manager
Horizon Financial Services, LLC
