Weekly Snapshot September 8th, 2020
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
What We’re Watching in the Week Ahead
New coronavirus cases in the US have fallen to roughly 42k per day, down from 70k/day seen in July, though still double the level of new cases reported in the spring before reopening began.1 August saw more than 28,000 COVID-19 US deaths, more than July, and the total surpassed 185,000.1 College campuses are the latest hotspot as reports of numerous outbreaks have occurred when students returned to campus. There was hopeful news as the CDC told states to prepare vaccination programs for distribution as soon as November. While these are likely to be targeted for health care and other essential workers and vaccines for the general population isn’t likely until further into 2021, investor and consumer confidence will be boosted when an effective vaccine is found and used.
Journalists and Wall Street pundits are quick to use letters to describe any economic recovery. The one being used to describe the current recovery is “K”. This represents a segment of companies that benefit from a stay-at-home economy where housing is at a premium (large-cap technology disruptors, homebuilders, home-related retailers and manufacturers of home goods), while the other arm of the K represents the many small businesses (there are 30m in total in the US1) and jobs that are expected to vanish, unable to cope with COVID-19 protocols and changing consumer behavior. This has caused a growing list of winners and losers and is likely to result in an uneven recovery as it will take time (years) for the displaced to transition and adapt to the new world order. Since March, over 150k small businesses have already reported to be permanently shut with many more expected to follow.1
As always, we appreciate your confidence in our team.
Fundamentum Investment Committee
Chad Roope, CFA® Portfolio Manager
Paul Danes, CFA® – Investment Committee
Trevor Forbes – Investment Committee
Matt Dunn, CFA® – OSJ Supervisor
1-Morningstar Direct 9/8/20
Investment advice offered through Fundamentum LLC a registered investment advisor. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. There is no assurance that the investment objective of any investment strategy will be attained. Investing involves risk including loss of principal. Past performance is no guarantee of future performance. All indices are unmanaged and may not be invested into directly.