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Sea of green. Stocks rallied on Friday as nervous investors breathed a sigh of relief. Hopes that Congress will come up with a compromise on aid helped fuel the rally, which was led by technology shares.
N O T E W O R T H Y
The path forward. September is, historically, a tough month for the markets. I am sure that we can come up with lots of theories as to why, but the fact remains that September has proven to be a volatile month if we look back at the road travelled in years past. This particular September has certainly lived up to its reputation. For those of us who are constantly focused on the markets, it is sometimes hard to believe that there is actually a parallel world that coexists alongside of the stock market. You know, the real world. It is important to note that not all Americans actually own stocks and, as one might suspect, ownership is heavily skewed toward higher income earners and displays a clear divide by race and ethnicity. That said, research shows that consumers are more confident when the stock market is going up. Not counting the past few weeks, stocks have certainly been on an impressive upswing since bottoming in March. The tech-driven Nasdaq pierced into the green for the year last Spring and the S&P spent most of a blissful summer there as well. Technology certainly helped, but there were also some notable improvements in the economic numbers. Many of those numbers are followed on percent change basis, so big upswings can be expected when coming from depressed lows, which we unarguably experienced in the wake of the national lockdowns. Another way to track those numbers is through their performance relative to analysts' expectations. Even the most weathered economists and analysts were stunned by the pandemic which caused most of them to significantly lower expectations, making them more easily beatable. So economic numbers appear to be improving and tech… well, tech really took off and led the path upward in the large cap indexes. That brings us back to the real world. The Russell 2000 Index represents the 2000 smallest capitalized companies on the Russell 3000, and the index is a better representation of what is going on in the real world. With those stocks, there are no overnight billionaires minted on obscure technology IPOs, no multi-billion dollar government bailouts, no battery days, and no visits to Capitol Hill. Just smaller public companies struggling to grow businesses, mostly focused on domestic customers. There is no FANGMAN topping the Russell 2000’s roster, which probably explains why it is down by -11.60% for the year, while the Nasdaq is up by +21.63%. The real world. The week ahead will give us some very important numbers to ponder when it comes to the economy. We will get a second estimate on how well the economy performed last quarter, which is interesting but really represents what happened in the past. A more timely assessment of the economy will come from the monthly employment numbers from the current month. Those numbers are expected to show a mild improvement but they still remain quite far from where they were pre-pandemic. Even more timely is the Conference Board’s Consumer Confidence, and University of Michigan Sentiment. Those two indexes will be very closely watched as those can give investors a sense of what consumers are thinking. Congressional stimulus is all but expired for many, unemployment remains high, and… wait for it… the stock market hasn’t been doing too well in the past few weeks. Analysts will want to know if consumers continue to regain their confidence and plan to get back to doing what they do best: consume. A vaccine appears to be around the corner, but so are elections, which adds additional uncertainty. Congress appears to be working on another potential stimulus package, though it doesn’t appear to have any legs at this point. So what does the road ahead look like? September and its infamous history has but a few more days, but the volatility that came with it will most likely stay with us… for a bit longer.
THE MARKETS
Stocks rallied on Friday on hopes that Congress will be able to agree on a new stimulus plan.
The S&P500 closed up by +1.60%, the Dow Jones Industrial Average rose by +1.34%, the Russell 2000 Index climbed by +1.59%, and the Nasdaq Composite Index added +2.26%. Bonds slipped and 10-year treasuries lost -1 basis point to 0.65%. The VIX eased back to 26.38, indicating daily potential moves of +/- 1.63%.
NXT UP
- Dallas Manufacturing Activity (Sept) is expected to have grown to 9.6 from 8.0.
- The Fed’s Loretta Mester will speak today.
- In the week ahead, we will get a few notable earnings releases as well as more regional Fed reports, housing numbers, Consumer Confidence, Factory Orders, manufacturing PMIs, GDP, PCE Deflators, the monthly employment numbers, and University of Michigan Sentiment. That is a lot of numbers to take in, with the addition of numerous Fed speakers. Please refer to the attached earnings and economic calendars for details.
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