ND&S Weekly Commentary 9.21.20 – Selling Continues for a Third Straight Week

September 21, 2020

Stocks sold off last week helping to push all three major U.S. indexes to a third consecutive weekly loss. Investors continued to take profits in technology stocks as the Nasdaq officially entered correction territory with the index now over 10% below its most recent high set on September 2nd. Anxiety surrounding the upcoming elections, geopolitical tensions, the lack of containment for covid-19, absence of a new stimulus package and tepid economic growth have investors on edge. The Fed added a dose of realism as they continued their guidance for easy monetary policy and low interest rates for the foreseeable future.

For the week, the DJIA closed lower by 0.03% while the S&P 500 gave back 0.64%. The Nasdaq declined 0.56%. Small company stocks, represented by the Russell 2000, bucked the trend and finished higher by 2.64% for the week. International stocks provided a bit of ballast last week. For the week, the MSCI EAFE index gained 0.79% while emerging market equities (MSCI EM) jumped 1.59%. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week slightly lower by 0.09%. As a result, the 10 YR US Treasury closed at a yield of 0.70% (up ~3 bps from the previous week’s closing yield of ~0.67%). Gold prices closed at $1,952.10/oz – up 0.74% on the week. Oil prices moved materially higher as oil closed at $41.11 – up over 10% on the week.

Economic news released last week was mixed. On Tuesday, the Federal Reserve reported that industrial production for August increased 0.4%, missing expectations for a 1.0% increase. On Thursday, the U.S. Census Bureau reported that housing starts decreased 5.1% month-over-month to a seasonally adjusted annual rate of 1.416 million. Overall, housing starts are up 2.8% from the same time last year. Housing continues to be a bright spot for the U.S. economy. Also on Thursday, the Department of Labor reported that initial jobless claims for the week ending September 12 were 860,000, better than expectations for 875,000 claims. Data released Friday showed that consumer sentiment increased to 78.9 in early September, better-than-expected.

Second quarter earnings season for the S&P 500 is mostly complete with 83.2% of companies reporting a positive earnings surprise. For the 2nd quarter, earnings were down 30.1% year-over-year (in-line with expectations) while revenues were down 8.7% y/o/y (also in-line with consensus). The impact of covid-19 on the worldwide economy is quite obvious in the above numbers.

Markets seem to be fatigued. The passing of Justice Ginsburg will add more drama to the already-contentious presidential election and stock market outlook. With covid-19 deaths in the United States approaching 200,000 and fears of an upcoming spike in cases, any encouraging news on the vaccine front will certainly be welcomed. We urge investors not to overthink the current wall of worry and to stick close to long-term target asset allocations with a slight defensive bias.

RIP Ruth Bader Ginsburg – a true icon and trailblazer whose contributions to equality and justice were enormous.