Last week had something for everyone

The week started with continued strength as we reached new highs in the S&P 500 and NASDAQ by Wednesday and the Dow also broke through the psychological 29,000 level for the first time since February. All this may have been a little too much and too fast for some folks. On Thursday, we were reminded that what goes up can come down quickly as the Dow plunged over 1,000 points before settling down around 800 points. The pain spilled over into Friday as we limped into the long holiday weekend before markets recouped most of their losses.

 

Multiple factors contributed to the panicky selling, including overheated tech stocks, the impasse in Congress over additional stimulus and Dr. Anthony Fauci saying the optimism of a coronavirus vaccine being delivered by Nov. 1 probably is overly ambitious. Traders were also wary of the Bureau of Labor Statistics jobs report on Friday and didn’t want to hang on to equities over the long weekend. Instead, they banked their gains and contributed to driving markets lower.

 

After the job number and the unemployment rate surprised in a positive manner on Friday, the markets continued to sell off as we rolled into the weekend and the additional stimulus impasse created more uncertainty. The reason? Traders thought the better-than-expected jobs data would provide a reason to hold off on additional government spending. However, by Friday’s close, markets rallied and appeared to stabilize.

 

The reaction to the stellar jobs report was a classic example of buying on the rumor and selling on the news. This week had something for everyone – giving both the Bulls and the Bears something to cheer and jeer about!

 

The Super “V”  – no, it’s not Super Bowl V, but football is coming!

For those who read these notes regularly, you’re familiar with my skepticism for “experts” and their forecasts. The latest forecast to be discredited was the one that predicted that the unemployment rate would remain in the double digits into 2021. Well, just like they said it would take years for the stock market to come back from coronavirus lows, these same experts told us that the unemployment rate would remain in the double digits into 2021.

 

Behold. While the August jobs report was mostly in line with estimates (1.37 million versus expectations of 1.35 million), the real surprise was the new reported unemployment rate. There were calls for a 9.8% rate – but the actual number was reported at 8.4%! Nearly half the jobs lost during the shutdown have been replaced, even though some major metropolitan areas continue to enforce restrictions. Ongoing shutdowns are preventing businesses from reopening and generating uncertainty and anxiety for workers who don’t know when their kids can return to school and they can return to work. I can’t help but think that if we have come so far out of the depths of the shutdown, how much better can things get if the entire country is reopened and working again?

 

The CDC announced last week that a vaccine might be available by the first of November. A vaccine would be a stunning development; it would be the fastest research, testing and deployment of a treatment for a major public health hazard in history. (At least to my knowledge. I’m not an expert on infectious diseases.)

 

A vaccine would be a game-changer and would dispel all arguments around the coronavirus, from reopening our economy to getting kids back to in-person schooling and making it possible for people to vote in person at the election. These are all stressors that continue to plague our recovery and return to normalcy. First, we were told we needed to stay home and flatten the curve so our hospitals wouldn’t be overwhelmed – we did that. Then we were told to watch out for a second wave and needed to social distance and mask up – we did that, too. Now we’re being told things can’t get back to normal unless we get a vaccine. It looks like that will happen, too, so what else can get thrown at us?

 

Whether it’s a vaccine, personal responsibility, common sense, continued support from the Federal Reserve, more stimulus from the government or a combination of all these things – we can do better. Given the stunning rebound so far despite all the current headwinds, last week’s jobs data was a real breath of fresh air.

 

About face! Google braces for a DOJ lawsuit

After being lambasted after the 2016 elections by both parties for perceived bias and a propensity for allowing misleading political advertising, Facebook announced last week that it would stop allowing political ads the week before the election. The move is an attempt to stem criticism before it happens. Unfortunately for investors, Facebook and the other FAANG stocks (Facebook, Apple, Amazon, Netflix and Google) have driven much of this most recent run-up in markets. In fact, the markets would be mostly flat in 2020 were it not for the performance of this select group of companies.

 

Some other bad news for big tech: Reports are that the Department of Justice is going to file a lawsuit as early as this month. The antitrust case will focus on Google parent Alphabet’s massive search business and investigate whether Google uses its industry-dominating position in a biased manner against consumers and those who don’t agree with its views. Some will see the lawsuit as political while others will hail it as long overdue, arguing that one company holding such a dominating position in our lives is often not to our benefit.

 

COMING THIS WEEK

·     The trading week is a shorter one as we marked the unofficial end of summer with the Labor Day holiday.

·     We won’t see a lot of data this week, but we will get some inflation figures (PPI and CPI) at the end of the week.

·     September and October are historically turbulent months for markets. After the dizzying summer we’ve had plus the impending election, we can expect more volatility in the near future. Last week offered us a preview of how the next few months might look.

 

Have a great week!

 

Tom Siomades, CFA®

Chief Investment Officer

AE Wealth Management

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