ND&S Weekly Commentary 9.14.20 – Markets Pull Back

September 14, 2020

U.S. stocks capped off a roller coaster week with a second straight week of declines. For the week, the S&P 500, DJIA and NASDAQ were all down 2.5%, 1.6% and 4.1%, respectively. This pullback has largely been driven by technology stocks which previously led the U.S. markets to all-time highs and elevated valuations. In the last 2 weeks, the S&P 500 and the NASDAQ have lost 4.8% and 7.2%. Thankfully, economic news and corporate earnings have generally surprised to the upside. The worst performing sectors last week were energy and technology and the best sectors were materials and industrials as value stocks outperformed (at least for the week). Challenges still lie ahead for U.S. stocks in the form of economic recovery, U.S./China tensions, economic stimulus, a presidential election and prospects for a Covid-19 vaccine. As a result, expectations are for continued volatility. International equities were mixed on the week as the MSCI EAFE index rose by 1.5% and emerging markets declined 0.7%.

Fixed income markets have been relatively stable with the 10 year U.S. Treasury trading in a narrow range. Last week, the 10 year Treasury rate dropped from 0.72% to 0.67% as investors sought shelter from volatility. One risk to fixed income is an increase of inflation. The Consumer Price Index (CPI) increased 0.4% in August, outpacing expectations. Over the last 12 months, CPI has increased 1.3% and remains low. This week will bring economic reports on retail sales, housing starts and jobless claims. The Federal Open Market Committee (FOMC) meets this week and will perhaps give some guidance on how long they will remain accommodative.

We continue to preach diversification and urge investors to stay close to long-term asset allocations with a slight defensive bias.

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