By Caroline Valetkevitch

NEW YORK, Sept 30 (Reuters)U.S. stocks are set to close out another quarter with sharp gains on Wednesday, but investors could remain wary with the upcoming U.S. presidential election and mounting coronavirus cases.

The S&P 500 .SPX was on track for a September decline, its first monthly fall since March, when the coronavirus began its rapid spread across the United States.

The benchmark index was last up nearly 9% for the third quarter, following a nearly 20% rise in the second quarter. That would make its two-quarter gain its biggest such rise since 2009.

The Nasdaq composite index .IXIC was set to gain more than 11% for the third quarter, and register its biggest two-quarter rise since 2000.

Hopes of a strong recovery and historic stimulus from Washington and the Federal Reserve fueled the U.S. stock market rally following the coronavirus-driven crash in March, but stocks have struggled since the market peaked on Sept. 2. Recent weeks have been marked by a sell-off in heavyweight technology-related shares.

“People are going into the end of the quarter with a bit of a wary, uncertain feeling,” said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.

“We not only have a still-unstable COVID pandemic situation, you have the uncertainty of the election.”

MATERIALS LEAD IN SEPTEMBER

“The September pullback in U.S. equities occurred from overbought conditions, following a five-month surge, in the historically worst-performing month of the year,” Terry Sandven, chief equity strategist at U.S. Bank Wealth Management, wrote in a note.

But he said many risks for stocks remain, including the pandemic, Nov. 3 presidential election and a Supreme Court vacancy following Ruth Bader Ginsberg’s death.

Investors have worried that the election results will be uncertain or possibly not accepted.

The S&P 500 materials sector .SPLRCM outperformed and led gains among S&P sectors for September, while the most heavily weighted sector, technology .SPLRCT, was set to be among the weakest.

Performance among sectors was mixed for the quarter. Materials and industrials .SPLRCI were set to be among the top performers along with consumer discretionary .SPLRCD and technology for the third quarter, while energy .SPNY lagged.

GROWTH WINS OVER VALUE FOR QUARTER

Valuations make cyclical sectors “compelling,” Sandven noted.

Investors have struggled to figure out where to invest, with many mega-cap tech stocks trading well above their long-term price-to-earnings ratios.

Value stocks continued a trend of underperforming growth names for the quarter. The Russell 1000 growth index .RLG is up about 14%, while the Russell 1000 value index .RLV is up about 6%.

Stocks continued to look more attractive compared with bonds.

After tightening for most of the quarter, the spread between the S&P 500 dividend yield and the 10-year U.S. Treasuries yield US10YT=RR began to widen in the last month.

S&P 500 sectors in Q3https://tmsnrt.rs/3jtFTYo

Growth vs Value performancehttps://tmsnrt.rs/2HNn3hj

S&P dividend yield vs 10-yr U.S. Treasuryhttps://tmsnrt.rs/33gnU27

The Nasdaq’s big comeback The Nasdaq’s big comebackhttps://tmsnrt.rs/3n69byI

S&P 500 component performance in Q3https://tmsnrt.rs/3jiLmRR

(Reporting by Caroline Valetkevitch, Noel Randewich, Chuck Mikolajczak and April Joyner; editing by Richard Chang)

(([email protected]; +1 646 223 6393; Reuters Messaging: [email protected]))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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