“Combine the extremes, and you will have the true center.” ~ Karl Wilhelm Friedrich Schlegel, German Poet, (1772-1829)
Question: The market keeps hitting new highs. Whatever happened to the summer doldrums and the old saying, “Sell in May and go away, come back after Labor Day?”
Answer: There aren’t enough adjectives to describe how exceptional this year has been; unprecedented, unique or extraordinary don’t do justice to the unmatched activity of 2020. August has historically been a relatively weak month in financial markets, but here we are, setting new records yet again. Led by technology and large-cap companies, we’re on pace to post record summer performance in over 80 years.
The “tale of two markets” continues with the S&P 500 increasing over 7% in August, with its best summer performance since 1938 while hitting new record highs. Market breadth is a term used to assess which stocks participate in market movement. The overall extent of market activity is certainly lacking, and the leaders represent a narrow segment of overall economic activity. Momentum in the technology sector has led the way, and in many instances, allowed companies to continue operating. This scope of market movement may or may not be problematic going forward. We’ll be watching for strength to broaden and include other sectors as time goes on.
Financial market resilience took place in the face of COVID-19 after shutdowns affected the majority of citizens. On the horizon, we face a potential standoff in Congress regarding additional stimulus money and of course the upcoming Presidential Election.
What to Watch
Economic recovery depends on unemployment figures, COVID-19 therapeutics and vaccines, and corporate as well as household earnings. In addition, the levels of future government support and the success of school re-openings contribute to economic activity. The Federal Reserve will remain accommodative as stated by Chairman Jerome Powell, with rates staying lower for longer. A wild-card is the September 30 government funding deadline for the next potential legislative package, which could easily be tied to a must-pass bill required to avoid a government shutdown.
Since the onset of COVID-19, the pace of consumer spending and employment status have been significant considerations. This is a major contributing factor to the market volatility in either direction. With limited opportunities to spend money during quarantine, big-ticket items like cars, boats and electronics have soared. Not all jobs are coming back in the same manner, if at all in some cases. Further job cuts could dampen the recovery.
Increased volatility may be the new norm, whether we’re discussing market activity or emotions. This year has been chaotic, turbulent and confusing. This is why you’re encouraged to keep your long-term objectives and asset allocation in mind. Stay focused and plan accordingly.
Investing involves risk, and investors may incur a profit or a loss. All expressions of opinion reflect the judgment of Raymond James and are subject to change. There is no assurance the trends mentioned will continue or that the forecasts discussed will be realized. Past performance may not be indicative of future results. Economic and market conditions are subject to change.
The S&P 500 is an unmanaged index of 500 widely held stocks. An investment cannot be made in an index.
There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct… Past performance does not guarantee future results. The opinions expressed are those of the writer as of September 2, 2020, but not necessarily those of Raymond James and Associates, and subject to change at any time.
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