|THE WEEK IN REVIEW: Sept. 6 – 12
Tech stocks stumble as September lives up to its rocky reputation
After an ugly start, with high-flying tech stocks falling from their lofty perches, September has so far been a mixed bag. Volatility returned, hitting the high 30s on Sept. 4 before steadily and slowly dropping into the high 20s by last Friday. There hasn’t been anything specific in the news, other than a hiccup in vaccine progress as AstraZeneca suspended trials after experiencing some complications.
The other ongoing concern has been Congress’ failure to come to any agreement on additional coronavirus stimulus. Hopes are fading that the original plan passed in the Democrat-controlled House can be reconciled with the package proposed by the Republican-controlled Senate. The major sticking points surrounding the impasse are perceptions that the House plan includes all sorts of non-coronavirus-related measures, whereas the Senate’s “skinny” plan doesn’t include enough stimulus to make a meaningful impact. Neither offering is satisfactory, and the lack of willingness to compromise on both sides will doom any additional stimulus from arriving to help the average citizen before the election.
With no relief in sight from Congress, markets noticed and tech stocks pulled back after leading the way since the massive sell-off in March. With fixed income rates where they are right now, the stock market remains the only viable place for investors. Now with Congress on the sidelines, the Federal Reserve will shift into focus. At the Fed’s meeting this week, markets will be keen to see if there are additional measures the Fed can take to provide more liquidity or support. The stock market has been on a “sugar high” of low rates and liquidity and isn’t keen on having the punch bowl taken away anytime soon. This recovery still has plenty of legs as we close out the year, but investors should be wary of the potential for increased volatility as we approach the election.
The recovery is still on track
Reports are emerging that the economy, as measured by GDP, will hit more than 30% growth in the third quarter. As the economy continues to reopen, kids return to school and the NFL starts back up again, there appears to be a slow return to normalcy. Initial unemployment claims came in below 1 million for the second week, which is encouraging but still leaves a long way to go. At least for the moment, movement continues in a positive direction. Big cities, which are major economic engines, still need to come back online; there still seems to be trepidation about reopening more fully, whether it’s concerns around the virus or violence in the streets. So far, we have come back with little to no support from major metropolitan areas, and now is the time for big cities to start contributing to the recovery. I remember another time in our recent history when there was this much anxiety, but we managed our way through that crisis much differently than we seem to be this time around.
A somber anniversary
As someone who lost classmates and colleagues to the events of 9/11 and its aftermath, this time of year is often filled with emotion for me. It’s hard to believe the world has gotten to its current state in the past 20 years. It’s also difficult to reconcile the carefree days of the late ’90s with where we are today. Back in the days after 9/11, we were united in our resolve, and we hailed our police and firefighters as heroes. We rediscovered our identity and collectively focused on the tasks at hand. Today? Not so much.
Nearly 20 years of sacrifice, a financial crisis, multiple pandemics, and what do we have to show for it? Please tell me that it’s more than an internet that works (remember aol.com and dial-up modems?), smartphones and Netflix. We can do better! Please take a few minutes to reflect on where we are and where we are going. The world has gotten a lot more cynical and dark over the past 20 years, and we all have a responsibility to contribute to a better future. Let’s all work together toward a brighter, stronger and united America. If not for us, then for future generations!
Coming this week
· The Fed will meet this Tuesday and Wednesday. With Congress at an impasse concerning additional stimulus, what, if anything, is the Fed willing to do? We already know where rates will remain for the foreseeable future, but we need to watch for language as to what other additional measures they may be considering to help the economic recovery further.
· Industrial production (Tuesday), business inventories (Wednesday), leading indicators and consumer sentiment (Friday) will help give a reading to the strength of the recovery.
· Friday is also quadruple witching, the quarterly simultaneous expiration of stock index futures and options, stock options and single stock fixtures. With September starting rather wild and woolly so far, volatility may be outsized on Friday.
Have a great week!
Tom Siomades, CFA®
Chief Investment Officer
AE Wealth Management