Weekly Snapshot September 25, 2020

Market Review: Week Ending 9/25/2020

US stocks declined for the 4th consecutive week, as the S&P 500 Index fell 0.6% to a 7-week low of 3298.1 What began as a healthy pullback in the extended (and expensive) technology leaders has gained downside momentum as new Covid-19 cases have accelerated in the US and Europe, and as investor optimism around additional fiscal stimulus has waned. Without additional stimulus, investors have begun to question the pace of the economic recovery with over 12m Americans still unemployed1 and with the rising number of infections,1 both occurring just before the final leg of the election campaign which is sure to bring additional uncertainty. Stay-at-home technology leaders recaptured investor interest again last week after their September declines as concerns over the virus grew. Growth leaders and Covid-19 beneficiaries Zoom, Amazon, Apple, Microsoft, PayPal, and eBay all rallied last week, while “recovery sectors” Energy, Financials, and Industrials sectors each declined 2-5%.1 There were also new signs of stress in credit markets as outflows from high-yield funds and ETFs surged to $5B, the largest outflow since March, sending credit spreads higher after a long period where spreads had compressed.1 Reports of delinquencies in the subprime auto and residential mortgage markets also emerged, and bank lending standards are said to have become stricter as banks attempt to minimize exposure to problem loans. Housing continues to be the bright spot in the economy. Existing Home Sales were reported last week to have risen 10.6% y/y in August, and the median house price rose 11.6% to over $315k.1 Inventory has fallen to a record-low 3 months of sales.1 Through the close Friday, year to date results for the major indices are as follows: S&P 500 3.5%, Russell 2000 -10.7%, MSCI EAFE –8.5% and Bloomberg Barclays Aggregate Bond 6.8%.2


  • Nike Inc. – NKE rose 8.3% last week, reaching an all-time high after delivering better-than-expected Q2 earnings of $0.95 vs expectations of $0.46.1 Led by an 82% increase in digital sales (now comprising 30% of sales), NKE was able to show flat y/y sales comparisons, a significant improvement over the disastrous spring quarter. Despite heading into the holiday season with less inventory due to the 30% capacity cut implemented in the spring when demand was less certain, analysts have raised near-term EPS estimates by 10% for NKE following the quarter.1 NKE trades around 37x forward calendar year estimates, which assume a 30% increase in EPS in 2021, as investors are willing to look past its high valuation as NKE continues to take market share and as earnings are seen as temporarily depressed.

  • Johnson & Johnson – JNJ became the 4th company to enter the final stage of testing for a Coronavirus vaccine.1 JNJ is testing a one-dose shot that could be ready for mass production early in 2021. The stock fell 2.5% last week as investors appear to be waiting for outcomes before bidding the stock higher on this vaccine news.1 JNJ joined Moderna, Pfizer and AstraZeneca PLC in reaching the final stage of testing.1


  • Pace of the Economic Recovery – Journalists and Wall Street pundits are quick to use letters to describe any economic recovery. The letter being used to describe the current one 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 travel-related industries and many small businesses where jobs are expected to vanish, unable to cope with Covid-19 protocols and changing consumer behavior. This week’s reports on Consumer Confidence, Personal Income and September Nonfarm payrolls will all measure the strength of the consumer and are particularly important now that nearly 8 weeks have passed since extended Federal unemployment benefits have lapsed. Friday’s Nonfarm Payroll report will be the last jobs report before the November 3rd election. Each side will attempt to use the Unemployment Rate to their advantage so changes to the current 8.4% rate will be closely watched.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 9/28/20
2-Factset 9/28/20

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