The September swoon for stocks continues
With no apparent relief from Congress in the form of a new coronavirus package, the markets mostly sank for a fourth week in a row. Continued unrest, along with all the focus on the upcoming election and the possible outcomes, has effectively shifted any discussions in the markets from fundamentals and economic activity to a daily spectacle of “what ifs.” One of the major concerns for markets is that the election will not provide a clear picture of who will win on election night itself, which will usher in uncertainty. We all know how markets feel about that.
Federal Reserve officials were out in force last week, with Chairman Jerome Powell calling for more government stimulus. It begs the question: Is the Fed out of tricks with respect to any additional measures?
We see a daily shift in the topics that are driving the markets. First, it’s the on-again, off-again government stimulus discussions. Then it’s IPO hype, followed by a rise or decline in Big Tech movements. Are the drivers of the recent rebound going to make another run, or have conditions changed that will require repositioning of market leadership? Vaccine news waxes and wanes, and markets seem to ebb and flow with the tides. There have been more questions than answers the past few weeks, but there is no escaping the obvious observation that the markets have drifted down and aren’t much different from where we were a year ago.
Congress fiddles while cities burn
The rare moment of focus by Congress in the spring as it passed the CARES Act to help stem the damage from the shutdown has failed to rematerialize. We get news now and again that Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi have either had talks or have scheduled talks, but there has been no movement recently from the initial stance taken by both sides. The Democrats had proposed a $3+ trillion package containing many items that have nothing to do with coronavirus-related relief (such as fixing underfunded state employee pensions). The Republican plan offers slightly over $1 trillion of coronavirus-related aid. The proposals are $2 trillion apart, and neither side has expressed a desire to make many concessions. By Friday, however, the Democrats were preparing a new $2.4 trillion plan and Republicans were hinting that they may offer close to $1.5 trillion in relief. What’s a trillion dollars between friends?
NEWS FLASH: These people are not friends, and they continue to spar. Most of the initial CARES Act money is quickly running out. The enhanced federal unemployment payments ran out in July and were extended, in an abridged version, via presidential executive action. Small-business loans and protections are all but exhausted, and the airlines are asking for an additional $25 billion to prevent massive layoffs, to name just a few of the issues that need addressing.
The passing of Justice Ruth Bader Ginsburg has added an unexpected Supreme Court nomination fight to an already stressful election season, making the prospects of a deal for additional stimulus even more remote. A few months ago, it was practically a certainty that Congress would approve additional stimulus, given it’s an election year and no politician was ever shy about giving away money before an election. This year, it appears that it will not happen. Through much of July and August, the markets anticipated more stimulus, the Fed stepped up and the economy was reopening. Then we had a second virus scare and an uptick in civil unrest, while both sides dug into their ideological trenches. The reality is that we are not expecting any movement on additional stimulus before the election. The market has realized this, resulting in a steady increase in volatility and a deterioration in market conditions the past few weeks.
Disappointment at no extra charge!
There was a lot of hype this week about a so-called “million-mile battery,” and Tesla’s Elon Musk held a Battery Day to promote longer-lasting and less expensive batteries. Like Musk’s other debuts, Battery Day was inconsistent. Don’t get me wrong: It would be a wonderful thing to have a battery that lasts longer and is less expensive. But we aren’t there yet, despite the fact that (unlike efforts in the ’70s) electric cars are here to stay and the technology is much better.
The real issue is expectations. Don’t hype a million-mile battery and then not deliver on the hype. Speaking of hype, electric truck hopeful Nikola’s CEO resigned amid accusations of fraud, including claims that a video of its electric truck was doctored and the truck only appeared to be moving because it was rolling down a hill. C’mon, guys. You need to get this right before Gov. Gavin Newsom stops allowing people to buy gas-powered vehicles in California in 2035! Since we’re on the subject, it’s a good thing Nikola Tesla didn’t have a middle name or else we’d probably be in store for another electric car manufacturer. Either way, markets punished both stocks for various reasons this week.
Coming this week
- This week should be busy, with consumer confidence and inventory readings on Tuesday and consumer spending on Thursday.
- Housing and construction data will be on display mid-week. We’ll see Case-Shiller numbers on Tuesday, pending home sales Wednesday and construction spending on Thursday.
- Manufacturing figures (ISM and PMI manufacturing) will be released Thursday.
- The major news this week will center on employment. We’ll get the ADP data on Wednesday followed by weekly claims on Thursday, which have been stuck at about four times the pre-shutdown levels. When we get the BLS employment situation for September on Friday, it will be interesting to see if new jobs continue to outpace the elevated new claims.
Have a great week!
Tom Siomades, CFA®
Chief Investment Officer
AE Wealth Management