ND&S Weekly Commentary 9.8.20 – Happy Labor Day

September 8, 2020

U.S. stocks reversed a five week winning streak as investors woke up to the over valuations of large Tech companies. The stock market downturn on Thursday and Friday erased $1.7 trillion in market value. The S&P 500 on Thursday fell 3.5%; however, it is still up 53% from its March lows. The CBOE market volatility index (VIX) surged close to a 10 week high.

For the week, the S&P 500 declined 2.3%, the DJIA was down 1.8% and the tech heavy NASDAQ fell 3.3%. Foreign markets slipped as well with developed markets, as measured by the MSCI EAFE index, falling 2.1% and 6.2% year-to-date. Emerging markets (MSCI EM) lost 1.9% for the week.

The Labor Department reported that the economy regained 1.4 million jobs in August and unemployment declined to 8.4% from 10.2%, which was better-than-expected. The Congressional Budget Office (CBO) released its update to the budget outlook on Wednesday. As expected, there was a sharp deterioration to public finances due to the Covid-19 response with the budget deficit expected to triple to $3.3 trillion. At 16% of U.S. GDP, this would mark the highest deficit since WWII. Much of the deficit are one-time expenses but it will funded by the ever increasing national debt now over $26 trillion. This is a medium to long-term issue that may lead to higher taxes, inflation or a decrease in government spending. This would result in lower economic growth and likely softer equity and bond returns in the future.

US Treasury yields were slightly lower while the US dollar was relatively flat. The yield on the 10 year US Treasury declined to 0.72% from 0.74% the previous week. The Bloomberg gold spot price rose $3.07 to $1,933.98 per ounce and WTI crude oil fell $1.60 to $39.77 per barrel.

The financial markets are faced with several major uncertainties and they may be starting to frighten investors and traders. The uncertainties include the divisive upcoming election, the pandemic, developing a vaccine, and US and China trade relations. A resolved and favorable stimulus bill and the Federal Reserve providing more liquidity through open market bond purchases, would soothe investors’ worries.

We have been concerned about the valuation and concentration of large technology stocks and their effect on the equity markets. With all the unknowns, we expect market volatility to continue so please, stay the course, remain diversified and hold quality assets. During this shortened holiday week, economic data reports will include Consumer Credit, CPI data, and hourly earnings.

“Pleasure in the job puts perfection in work.”-Aristotle