Table of Contents
“Full of sound and fury, signifying nothing.” – Macbeth
September comes to a close and the third quarter is in the books. The streak of monthly gains for the S&P 500 ended at five with September posting a loss of 3.9%. The quarter ended with an 8.4% gain. Given the dire forecasts that were part of the investment landscape in the last three months an investor just might call these results both “satisfying” and “normal”. When we take into account the rally off the March now stands at 45%, that view is confirmed.
The opening quote describes what investors have been subjected to lately. A lot of sound and fury with little to nothing of relevance behind the shouting. Recent stock market results drive home the point that listening to the attention seekers isn’t a profitable way to manage your investments.
According to many economists, the U.S. economic recovery is displaying their expected “K” shaped pattern, where various sub-sectors of the economy recover at dissimilar paces and magnitudes. Many critical industries such as airlines, entertainment, hospitality, and leisure have yet to come back to anywhere near “normal”. With COVID still hanging on, we can expect these sectors to remain in a long protracted recovery, and that will impact the overall economy as well.
It appears that until there is a successful vaccine and/or rapid testing becomes readily available for all, these industries at the lower parts of the “K” will continue to struggle. Many economists do not see U.S. GDP getting back to pre-pandemic levels until sometime in 2022.
The lack of a stimulus deal is concerning to many who believe that the economy needs stimulus now, especially with the critical holiday shopping season approaching. Preferred real-time activity metrics like Redbook sales, ISM data, consumer sentiment are not reflecting their concerns, and unless we start to see real deterioration in the economic data, that “case” may be a weak one.
For some market participants that sounds pretty bleak; for others, it means staying with what has worked so far in 2020.
That also means don’t fight the tape and don’t fight the Fed.
The Week On Wall Street
Investors left no doubt how they felt on Monday as it was “Risk On”. A “gap up” at the open set the tone for what became a start to finish all-day rally. If an investor came into the session with hedges on or “net short”, there weren’t many places to hide as the trading week opened. All of the major indices were up greater than 1.5% on the day, with the Russell small-cap index the clear leader rallying 2.4%. The across-the-board rally lifted both old and new economy stocks. At the sector level Homebuilders (NYSEARCA:XHB) rallied 3+%. Energy (XLE), Financials (XLF), Semiconductors (SOXX), Consumer Discretionary (XLY), Retail (XRT), and Autos (CARZ) were all up 2+%.
“Turnaround Tuesday” provided a pause to the upside rally as all of the indices recorded minor losses (less than 0.50%) with the Dow Transports the weakest index losing 1.2%. Despite all of the rhetoric surrounding the “debate”, the stock market responded to positive economic data that continues to roll in. The S&P broke above short-term resistance, and once again there was no place to hide if an investor found themselves on the wrong side of the “risk-on” trade. All of the major indices posted gains on the day, while the Dow transports lagged again losing another 0.6%. At the sector level Healthcare (XLV), Homebuilders, Autos, Financials, Materials (XLB) and Consumer Staples (XLP) were the big winners each gaining 1+%.
Back and forth action as every “stimulus” plan headline moved the indices on Thursday. When the dust cleared, it was a good start to the fourth quarter for the Bulls as small caps led the way with a gain of 1.5% and the NASDAQ followed by rallying 1.4%. The S&P was up 0.5% and the Dow 30 was flat. Semiconductors and Retail were each up more than 2%. Energy stocks can’t seem to get a break with the sector falling 3+% on the day.
Just when you thought things couldn’t get more chaotic, investors received the news that the President has tested positive for COVID19. That roiled the markets at the open, but the selling abated with all of the indices except for the NASDAQ composite dramatically cutting their intraday losses. The S&P fell 0.96%, the Dow 30 off 0.4%, with the Nasdaq never recovering during the day finishing down 2.2%. Both the Dow Transports and the Russell 2000 bucked the selling closing up 0.77% and 0.53% respectively.
What a week. A tumultuous presidential debate and the news this morning out of D.C., yet all of the major indices posted gains for the week.
The Eurozone recovering might be turning “WAVY”
The overall Eurozone economy has had a V-rebound, as highlighted by the impressive bounce in their PMIs, along with auto sales. That said, in August, their PMIs ticked down, and auto sales declined month over month. New COVID cases have picked up in several countries, notably France and Spain. But Germany, the driver of the Eurozone economy, continues to impress on the stronger side, as highlighted by the surge in their September ZEW indicator, to its highest level in 20 years. No wonder Germany’s DAX has outperformed nearly all its peers since the March lows (except NASDAQ).
Unprecedented monetary and fiscal stimulus will keep the Eurozone recovery on track despite the pick-up in new COVID cases. They are shunning lockdowns in this second wave. Authorities are enacting tailored, localized, and targeted measures to combat outbreaks while exhorting their citizens to protect themselves and others by behaving prudently.
Their schools remain open.
First Trust Economics compiles its Coronavirus High-Frequency data each week providing investors a quick view of the recovery. The chart below was posted on October 1st.
Sources: First Trust Advisors, Department of Labor, Redbook Research, Box Office Mojo, Association of American Railroads, American Iron and Steel Institute, Hotel News Now, Opentable, Transportation Security Administration, Energy Information Administration
The U.S. Q2 GDP growth boost to -31.4% from -31.7% beat estimates, thanks to a larger-than-expected services-led boost to consumption spending to -33.2% from -34.1%, alongside a wide array of small downside surprises for the remaining components. Analysts will still assume a 32.5% GDP growth rate in Q3, followed by a 6.0% growth in Q4. Today’s report gives us the final set of Q2 GDP figures that analysts will be using until the annual revisions are released next July. The reported two-quarter GDP collapse in the first half of 2020 was the largest on record and will be followed by the largest rebound on record in the last two quarters of 2020, hence capping the longest expansion on record
That scene is in the rearview mirror, what looms ahead look more promising. More district Manufacturing surveys, more positive reports.
Dallas Fed manufacturing index jumped 5.6 points to 13.6 in September, better than forecast, after bouncing 11 points to 8 in August. The index has recovered from five straight months (March-July) in contraction (and in negative territory in 9 of the last 12 months) where it dove to a record low of 74.0 in April as the region was whacked by the pandemic and low oil prices. The index was 1.0 a year ago. The production component climbed to 22.3 from 13.1 and is a fourth straight reading in positive territory after three pandemic months below zero. The September employment index improved further to 14.5 versus 10.6 and is up from the -23.5 low in March.
Chicago PMI surged 11.2 points to 62.4 in September, another strong reading, after slipping 0.7 ticks to 51.2 in August. It’s the third month in expansion and is the highest since December 2018. The only time the three-month gain in the Chicago PMI was anywhere close to the current three-month change was exactly 40 years ago. It brings the three-month average to 55.2 from 46.6. The reopening of the economy is being reflected in the improving economic numbers.
The seasonally adjusted IHS Markit final U.S. Manufacturing Purchasing Managers’ Index posted 53.2 in September, broadly in line with 53.1 seen in August, but down slightly from the earlier “flash” reading of 53.5. The solid improvement in the health of the goods-producing sector was the steepest since January 2019 and signaled a further recovery from April’s nadir.
Chris Williamson, Chief Business Economist:
“US manufacturers rounded off a solid quarter which should see the sector rebound strongly from the steep second quarter downturn. “Encouragingly, companies reported a marked upturn in demand for plant and machinery, which suggests firms are increasing their investment spending again after expansion plans were put on hold during the spring. Similarly, fuller order books helped drive further job creation as firms continued to expand capacity.”
“But it was not all good news. Supply shortages worsened as companies increasingly struggled to source enough inputs to meet production requirements. With demand often exceeding supply, prices rose sharply again across many types of inputs, especially metals.”
“Growth of new orders for consumer goods also waned during the month, hinting at some cooling of demand from households, commonly blamed on Covid-19. Overall order book inflows consequently slowed compared to August.”
“The outlook also darkened, as companies grew more concerned about the sustained economic disruption from the pandemic alongside uncertainty caused by the upcoming presidential election. The sector therefore looks to be entering the fourth quarter on a slower growth trajectory, adding to signs that fourth quarter GDP growth will wane considerably from the third quarter rebound.”
ISM manufacturing index dropped -0.6 points to 55.4 in September after rising 1.8 points to 56.0 in August (which was a 2-year high). The index was at 48.2 a year ago and has recovered from the plunge to 41.5 in April. Much of the weakness was in orders and production. New orders fell back -7.4 points to 60.2 from 67.6. Production declined -2.3 ticks to 61.0 from 63.3. But the employment component edged up to 49.6 from 46.4 and was at 27.5 in April. But it remains in contraction and below 50 since August 2019. Inventories increased to 47.1 from 44.4. New export orders improved to 54.3 from 53.3, while imports slipped to 54.0 from 55.6. Prices paid climbed to 62.8 from 59.5.
Factory orders undershot estimates with a 0.7% August rise after out-sized factory orders gains of 6.5% in July, 6.4% in June, and 7.7% in May, but record declines of -13.5% in April and -11.0% in March. Transportation orders rose 0.4% (was 0.5%), and ex-transportation orders rose 0.7%. The modest August undershoot reflected a restrained 0.8% rise for nondurable shipments and orders, which also left shipments rising by a smaller than expected 0.3%
Conference Board’s U.S. consumer confidence index soared 15.5 points to a six-month high of 101.8 in September, after plunging to 86.3 in August from 91.7 in July versus an 85.7 six-year low in April. The September consumer confidence surge reverses the particularly weak reading for this survey in August and tracks the September bounce in most confidence surveys after a stalling in July and August.
Seasonally adjusted initial jobless claims were improved this week. Claims fell 36K to 837K.
U.S. jobs report revealed a restrained 661k nonfarm payroll rise, though it followed 145k in upward revisions that left a combined gain that was near an 840k median. And, as with prior reports, the internals were solid. The workweek rose to a surprisingly high 34.7 hours, after climbing to 34.6 in the prior two months (was 34.5 in July), leaving a big 1.0% hours-worked rise that beat estimates.
Considering the economy is still handcuffed in many states here in the U.S., this report is not bad as some are saying. Those that are running around highlighting this is a bad payroll report forgot the economy isn’t completely OPEN.
Pending home sales index climbed 8.8% to 132.8 in August to what else, another record high. This follows the 5.9% rise to 122.1 in July. It’s a fourth straight monthly gain, having rebounded strongly (a record 44.3% increase in May to 99.6) from the pandemic plunge of -20.8% in March to 88.2 and the -21.8% collapse to the historic low of 69.0 in April.
The index level was at 106.9 a year ago. Gains were across the four regions, but much of the strength was in the west (13.1%). On a 12-month basis, the index posted a 20.5% year-over-year rate versus 15.4% y/y previously and is the fastest since April 2010 and compares to the record pace of 29.3% y/y from October 2009.
It’s accelerated from the record contraction rate of -34.6% y/y in April. This is one more housing market indicator reflecting the strength in this sector amid the urban flight to safety and more space in the suburbs, with help from record-low mortgage rates.
Lawrence Yun, NAR’s chief economist:
“Tremendously low mortgage rates – below 3% – have again helped pending home sales climb in August. Additionally, the Fed intends to hold short-term fed funds rates near 0% for the foreseeable future, which should in the absence of inflationary pressure keep mortgage rates low, and that will undoubtedly aid homebuyers continuing to enter the marketplace.”
“While I did very much expect the housing sector to be stable during the pandemic-induced economic shutdowns, I am pleasantly surprised to see the industry bounce back so strongly and so quickly.”
“Home prices are heating up fast. The low mortgage rates are allowing buyers to secure cheaper mortgages, but many may find it harder to make the required down payment.”
The global manufacturing recovery continues at end of the third quarter.
The J.P. Morgan Global Manufacturing PMI, a composite index produced by J.P. Morgan and IHS Markit in association with ISM and IFPSM, rose to a 25-month high of 52.3 in September, up from 51.8 in August. The headline PMI has signaled expansions in each of the past three months. Out of the 29 nations for which PMI data were available, 21 registered growth during the latest survey month.
The IHS Markit Eurozone Manufacturing PMI signaled an acceleration in the growth of the manufacturing economy during September. After accounting for seasonal factors, the index posted 53.7, unchanged on the earlier flash reading and up from 51.7 in the previous month. Moreover, September marked the strongest growth in over two years, and improved operating conditions have now been signaled for three months in a row.
Chris Williamson, Chief Business Economist at IHS Markit:
“The eurozone’s manufacturing recovery gained further momentum in September, rounding off the largest quarterly rise in production since the opening months of 2018. Order book growth and exports also accelerated, indicating a welcome strengthening of demand. Job losses consequently eased as firms grew more upbeat about prospects for the year ahead, with optimism returning to the highs seen before the trade war escalation in early 2018.”
“The recovery would have been far more modest without Germany, however, where output has surged especially sharply to account for around half of the region’s overall expansion in September. Germany’s performance contrasted markedly with modest production growth in Spain, slowdowns in Italy and Austria, plus a particularly worrying return to contraction in Ireland. Excluding Germany, output growth would have weakened to the lowest since June. “
The headline seasonally adjusted Caixin China Purchasing Managers’ Index, a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy, edged down from 53.1 in August to 53.0 in September, to signal a further solid improvement in the health of the sector. Operating conditions have now strengthened in each of the past five months. Notably, the latest reading rounded off the best quarterly performance since Q4 2010.
“Notably, new business expanded at the strongest rate since January 2011, aided by a solid rebound in export sales. Increased activity at home and abroad was reportedly driven by the easing of lockdown measures as the sector continued to recover from the coronavirus disease 2019 (COVID-19) pandemic.”
“Chinese manufacturers recorded a sharp and accelerated increase in total new work during September, with a number of firms commenting that a further recovery in client demand had boosted sales. Furthermore, the rate of new order growth was the steepest recorded since the start of 2011. Stronger external demand also helped to lift sales, with new export business expanding at the quickest pace since August 2017.”
At 47.7 in September, up from 47.3 in August, the headline au Jibun Bank Japan Manufacturing Purchasing Managers’ Index, a composite single-figure indicator of manufacturing performance, rose for the fourth month in a row following the low point seen in May (38.4). The latest reading was the highest since February albeit still below the neutral 50.0 value.
Tim Moore, Economics Director at IHS Markit:
“Subdued business conditions persisted across the Japanese manufacturing sector in September, but there were signs that the downturn has lost intensity. The latest declines in output and new orders were the slowest since the first quarter of 2020 and much softer than seen earlier in the pandemic. Some manufacturers noted that a turnaround in export sales to clients elsewhere in Asia had helped to offset some of the demand weakness across Europe and the United States.”
“The most encouraging aspect of the latest survey was a sustained rebound in business optimism from the low point seen during April. More than twice as many manufacturers plan to boost production in the next 12 months as those that forecast a decline, which pushed the survey measure of business expectations to its highest since May 2018.”
The headline seasonally adjusted IHS Markit India Manufacturing Purchasing Managers’ Index increased from 52.0 in August to 56.8 in September, signaling back-to-back improvements in the health of the sector. Moreover, the latest reading was the highest in over eight-and-a-half years.
Pollyanna De Lima, Economics Associate Director at IHS Markit:
“The Indian manufacturing industry continued to move in the right direction, with PMI data for September highlighting many positives. Due to loosened COVID-19 restrictions, factories went full steam ahead for production, supported by a surge in new work. “Exports also bounced back, following six successive months of contraction, while inputs were purchased at a sharper rate and business confidence strengthened. “
“One area that lagged behind, however, was employment. Some companies reported difficulties in hiring workers, while others suggested that staff numbers had been kept to a minimum amid efforts to observe social distancing guidelines. “When we look at the PMI average for the second quarter of fiscal year 2020/21, the result is in stark contrast to that seen in the first quarter: a rise from 35.1 to 51.6. While uncertainty about the COVID-19 pandemic remains, producers can at least for now enjoy the recovery.”
Falling from 49.0 in August to 48.3 in September, the headline PMI signaled a modest deterioration in the health of the ASEAN manufacturing sector. That said, the latest reading remained well above those seen at the height of the coronavirus disease 2019 (COVID-19) pandemic in the spring. Central to the overall decline was a renewed contraction in manufacturing output, alongside a seventh consecutive monthly reduction in order book volumes, although rates of decline were modest.
Lewis Cooper, Economist at IHS Markit:
“Conditions across the ASEAN manufacturing sector remained challenging at the end of the third quarter. The headline PMI signalled a seventh consecutive deterioration in the health of the sector, amid a renewed decline in factory production and a further fall in total new orders.”
“With demand conditions still muted both domestically and abroad, and capacity pressures remaining weak, firms made further cuts to their staffing levels. The rate of job shedding did ease slightly, but was still solid. “Only two of the seven constituent countries registered a headline PMI figure above the 50.0 threshold, reflecting the challenging conditions at present. Still, firms were confident about output over the next year, with sentiment picking up to the highest since January.”
“But, with virus cases rising in some countries and in other parts of the world, the downside risks from the reintroduction of stricter lockdown measures are concerning. A near record rate of deterioration in the health of Myanmar’s manufacturing sector was recorded in September as a result of stricter COVID-19 related measures. If more stringent lockdown measures are necessary across the rest of the region, there is potential for ASEAN as a whole to record a similar dip in performance, before any recovery.”
The seasonally adjusted IHS Markit/CIPS UK Purchasing Managers’ Index fell slightly to 54.1 in September, down from August’s two-and-a-half-year high of 55.2. The PMI has remained above its no-change mark of 50.0 for four successive months, its longest sequence in expansion territory since early-2019.
Rob Dobson, Director at IHS Markit:
“September saw UK manufacturing continue its recovery from the steep COVID-19 induced downturn. Although rates of expansion in output and new orders lost some of the bounce experienced in August, they remained solid and above the survey’s long-run averages. Export demand is also picking up, as economies across the world restart operations and adjust to COVID-19 restrictions. Business sentiment remained positive as a result, with three-fifths of UK manufacturers forecasting a rise in output over the coming year.”
“While the sector is still making positive strides, keep in mind that there remain considerable challenges ahead. This is especially true for the labour market, which saw further job losses and redundancies in September. The full economic cost incurred by 2020 will likely rise further as governments look to re-introduce some restrictions, job support schemes are tapered and rising numbers of firms start focusing on Brexit as a further cause of uncertainty and disruption during the remainder of the year.”
The headline seasonally adjusted IHS Markit Canada Manufacturing Purchasing Managers’ Index registered 56.0 in September, up from 55.1 in August, to signal the sharpest improvement in operating conditions since August 2018. Manufacturers reported the quickest rise in production levels in over two years during September, which was reportedly linked to increased capacity and rising workloads.
Shreeya Patel, Economist at IHS Markit:
“Overall, the health of the Canadian manufacturing sector continued to strengthen in September, as has been the case throughout the third quarter. Conditions improved at the fastest pace in over two years, helped by a solid upturn in manufacturing sales at both domestic and foreign clients.”
“A strong increase in workforce numbers also suggested a commitment towards expanding production schedules in the months to come. “For the moment, Canadian manufacturers continue to report positive sentiment, which was the highest in over a year.”
“However, not all is well, with supply chain disruption hampering stock building, as vendor performance deteriorated at rates only seen in the last six months. Inflationary pressures were the highest in nearly two years, while stocks of purchases and finished goods were depleted further amid insufficient capacity.”
Mexico remains in contraction showing slight improvement. The seasonally adjusted IHS Markit Mexico Manufacturing PMI improved from 41.3 in August to a six-month high of 42.1 in September. However, the latest figure was consistent with a marked deterioration in operating conditions that were sharper than any recorded before the COVID-19 outbreak.
Pollyanna De Lima, Economics Associate Director at IHS Markit:
“The PMI numbers for September show that Mexican manufacturers continue to struggle in the face of the COVID-19 pandemic. Further declines in new business, coupled with closures, led to contractions in factory output and employment that remain stronger than any seen prior to the coronavirus.”
“To fulfill production needs and any sales requirements, companies dug into their inventories, with stocks of both purchases and finished goods decreasing markedly. One positive takeaway from the latest results was the improved trend for business sentiment. Following six months of pessimism, companies on average became optimistic that output will increase over the course of the coming 12 months. Where growth was anticipated, however, that was contingent on a gradual recovery from the coronavirus pandemic and softer restrictions domestically and externally.”
Corporate earnings are down post-COVID, but similar to what we’ve seen with economic indicators, they’ve managed to more than exceed analyst expectations. As shown below, the percentage of companies topping analyst estimates has blown out to record highs, similar to what we saw in the early days coming out of the Financial Crisis, and sales beat rates are strong as well.
The next earnings season is right around the corner with the money center banks reporting the week of October 16th.
The Political Scene
Before the announcement today regarding President Trump testing positive for COVID, I put together a list of “what could go wrong” for members of my service this past week. Needless to say, this new event is now included in that list.
While we will see added volatility in the stock market now, do not lose sight of the fact that the president’s situation whatever the eventual outcome is will be a “short-term” event.
Every analyst, market pundit, and some investors seem obsessed with the ongoing wranglings over the next stimulus package.
Fiscal relief talks have revived and died multiple times in the past week. House Democrats originally postponed a vote on a scaled-down $2.2 trillion revised fiscal relief package in hopes that Speaker Pelosi and Treasury Secretary Mnuchin can strike a deal. Then they voted and passed that 2.2 trillion dollar package.
Negotiations are dead; now they are back on. House Speaker Nancy Pelosi said President Donald Trump’s coronavirus diagnosis could change the dynamic of talks toward a stimulus deal. The Democrat majority won’t agree to any package under 2 trillion, and the Republicans won’t agree to any package over 2 trillion. It remains to see if either side will give in.
Senate Majority Leader Mitch McConnell remains very skeptical, reflecting the mood of many of his Senate Republican colleagues, who are currently opposed to a multi-trillion-dollar fiscal package. President Trump has not weighed in publicly, but reports indicate he has given the green light to increase his offer and could use a boost to the pre-election economy and a political win.
The lack of traditional pressure points and catalysts make predicting the outcome very difficult.
If I heard this once, I’ve heard it 100 times in the last month.
“What happens to the economy if the deal can’t be reached.”
The stock market has already answered that question as it has yawned and carried on with little to no reaction during this entire fiasco in D.C. The S&P was 3,112 when the last package was passed, and it closed at 3,348 on Friday.
Investors need to be concerned about the “process” that is about to unfold in this Presidential election.
Michigan has opened the door for ballots to be counted for weeks after the election. This changes the existing Michigan law that states that absentee ballots must be received before polls close on Election Day to count.
New York always seems to be at the forefront of anything controversial, the election will offer the state a chance to remain in the spotlight when it comes to objectionable activity.
The concerns mentioned here weeks ago should be paramount in the minds of investors:
“No matter what political party an investor may be leaning to and no matter what you may believe will happen to your investments depending on who is the next president, all investors will face the same issue.”
“The distinct possibility that a ‘delayed’ and or a ‘contested’ result will wreak havoc with the equity market. Based on the dialogue on how this ‘vote’ will be conducted, the probabilities of that occurring are increasing day by day.”
“Only a ‘landslide’ victory by either candidate would cause that possibility to evaporate. Something to watch as the election draws closer.”
A trading range under 1% for the 10-year Treasury note has been in place for quite some time. After making a run to the top of that range in June, then testing the lows again, the 10-year bounced off the bottom and closed trading at 0.66%, rising 0.04% for the week.
The 3-month/10-year Treasury curve inverted on May 23rd, 2019, and remained inverted until mid-October. The renewed flight to safety inverted the 3-month/10-year yield curve once again on February 18th, 2020, and that inversion ended on March 3rd. The 2/10 Treasury curve is not inverted today.
Source: U.S. Dept. Of The Treasury
The 2-10 spread was 30 basis points at the start of 2020; it stands at 57 basis points today.
AAII’s reading on bullish sentiment rose to 26.24% from 24.89% last week. While more than a quarter of respondents are reporting as bullish again, that is still less than nearly one-third total (32.02%) we saw two weeks ago.
Better-than-expected EIA data on petroleum stockpiles partially played a roll in this as crude inventories drew by 1.98 million barrels compared to estimates of a 1 million barrel build. That continued decline in inventories is still consistent with the seasonal downtrend of this time of the year.
That larger draw is thanks to slightly lower imports and stable production while exports rose to 3.5 million barrels/day. That is the highest level since early May and results in the narrowest deficit on record. Including all other petroleum products in addition to crude, this week marked the fourth-highest reading of net exports on record behind April of this year and late December of last year
The price of WTI was under pressure all week as it once again looks to test the lower end of the $35-$42 trading range. WTI closed the week at $38.72 falling by $1.50.
The Technical Picture
From a technical perspective, the S&P held up very well this week given all of the headlines. With a close at 3,348, the index is right in between the 20-day and 50-day moving averages.
Trying to anticipate which way the index breaks from here is simply a guess. Using a “feeling” or an “emotion” to answer that question is the work of someone that shouldn’t be managing money. I reiterate what has been said here every week.
“The Long Term view, the view from 30,000 feet, is the only way to make successful decisions.
These details are available in my daily updates to members of my marketplace service.
Short-term views are presented to give market participants a feel for the current situation. It should be noted that strategic investment decisions should NOT be based on any short-term view. These views contain a lot of noise and will lead an investor into whipsaw action that tends to detract from the overall performance.
With the news that the president has tested positive for COVID-19, the natural progression of power then becomes part of the discussion as Vice President Pence is now in the spotlight more than ever.
If Mr. Biden were to become the next president, and the same fate befall him, the spotlight would fall to Ms. Harris.
Individual Stocks and Sectors
We have all heard how a handful of heavily weighted market stocks will make or break the entire stock market. Given the enormous gains these stocks have garnered in 2020, the consensus says these stocks will struggle now and take down the market with it. The graphic below shows the five largest stocks in the S&P.
The BEARs argue that IF the five largest stocks are struggling, the “market” isn’t going higher. While these stocks may take a breather and can move sideways for a while, one look at what these companies represent says any pause will be short-lived.
These franchises and others like them are for the most part immune to economic downturns. Their cash flow and balance sheets are the BEST any investor can find these days. It is no wonder why these companies are selling at their present valuations. Their businesses are geared to the new economy and will continue to grow at large multiples for the foreseeable future. In summary, they aren’t going to “kill” this market anytime soon, and they are a MUST HAVE for every portfolio.
You wouldn’t know it watching the news and all the turmoil going in in the world, but the end of September marked an epic six-month run for the U.S. equity market. It is also a period that many investors may want to forget. The weekly statistics highlighted the consistent equity outflows while the indexes were rising as many were “buying in” to the “sound and fury” talk that turned out to be incorrect.
The very near term is what I like to refer to as a period with a high “fog index”, and that didn’t include what we just learned about the President’s health. Difficult to see too far ahead, but once the fog clears, we usually find that our surroundings are still intact. The final quarter of this year presents an even greater challenge. If we employ the same tools that got us to this station in the BULL market, we will find a way to navigate what could be a volatile period.
So putting all of that together, it would be easy to put forth the message that an October/November equity swoon will take place and leave investors battered and bruised. What concerns me with making that prediction is that everyone else seems to have the same idea.
Whether one wants to believe the consensus view of what occurs in the upcoming weeks, or step out on a limb and suggest differently, for me, it doesn’t matter. When the fog lifts, I expect to manage my portfolios the same way that has led to the positive results achieved to date.
Therefore, it is best to approach this situation similar to how the entire bull market has been dealt with. Roll with the punches thrown, look at ALL of the surrounding data, and above all do not fall prey to emotion. Since the early stages of this bull market, there has been a great wall of worry for investors to deal with. That remains in place today as evidenced by the headlines and what is on the minds of analysts, investors, and pundits.
Most of them have been wrong in their assessment of the stock market. They had investors chasing their tails as they were whipsawed by an ever-evolving strategy that seemed to change with every headline.
I’ll leave readers with a simple assessment that is consistently left out of many of the wrong-footed approaches that have dominated the scene in 2020.
Before the COVID recession hit corporations and households improved their balance sheets. Unemployment for ALL was at the lowest level in history. Despite all of the other opinions, that does account for something, and that something gives these entities the flexibility to ride out soft patches. In turn, it lowers the chances of overreactions taking what could be a pause in the recovery and a possible soft patch into another recession.
Please allow me to take a moment and remind all of the readers of an important issue. I provide investment advice to clients and members of my marketplace service. Each week I strive to provide an investment backdrop that helps investors make their own decisions. In these types of forums, readers bring a host of situations and variables to the table when visiting these articles. Therefore, it is impossible to pinpoint what may be right for each situation.
In different circumstances, I can determine each client’s situation/requirements and discuss issues with them when needed. That is impossible with readers of these articles. Therefore, I will attempt to help form an opinion without crossing the line into specific advice. Please keep that in mind when forming your investment strategy.
to all of the readers that contribute to this forum to make these articles a better experience for everyone.
Best of Luck to Everyone!
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Disclosure: I am/we are long EVERY STOCK/ETF IN THE SAVVY PLAYBOOK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: My portfolios are ALL positioned to take advantage of the bull market with NO hedges in place.
This article contains my views of the equity market, it reflects the strategy and positioning that is comfortable for me.
IT IS NOT A BUY AND HOLD STRATEGY. Of course, it is not suited for everyone, as each individual situation is unique.
Hopefully, it sparks ideas, adds some common sense to the intricate investing process, and makes investors feel calmer, putting them in control.
The opinions rendered here, are just that – opinions – and along with positions can change at any time.
As always I encourage readers to use common sense when it comes to managing any ideas that I decide to share with the community. Nowhere is it implied that any stock should be bought and put away until you die.
Periodic reviews are mandatory to adjust to changes in the macro backdrop that will take place over time. The goal of this article is to help you with your thought process based on the lessons I have learned over the last 35+ years. Although it would be nice, we can’t expect to capture each and every short-term move.