U.S. EQUITY MARKETS LOSE GROUND FOR THE SECOND WEEK IN A ROW DESPITE MOSTLY POSITIVE ECONOMIC DATA AND LESS VOLATILITY

Weekly Market Update – Sept 14, 2020

• The markets continued to head south on the Labor Day-shortened trading week and despite some big daily movements, volatility actually declined as the week wore on
• The large tech names led the decline as NASDAQ dropped 4.1% on the week, followed by the S&P 500 and small-cap Russell 2000, which both lost 2.5% and then the DJIA, which dropped 1.7%
• Interestingly, the large-cap, developed international markets, as represented by MSCI EAFE, gained 1.4% on the week
• As was the case last week, the Energy sector was the worst performer, losing 6.4% as oil prices dropped by almost the same amount
• The Information Technology and Communication Services sectors lost 4.4% and 3.4%, respectively and the Materials sector was the only sector posting positive numbers with a slight gain of 0.8%
• Most of the week’s economic news was positive, including modest CPI numbers, optimism from small businesses and a jump in mortgage applications
• Oil dropped about 6% and ended the week at $37.34/barrel
• The 2-year Treasury yield declined to 0.13% and the 10-year declined to 0.67%
• The U.S. Dollar Index advanced 0.6%

Big Daily Movements with Less Volatility

After celebrating that the end of August marked five consecutive positive months for U.S. stock markets, investors worried about September – historically the worst month for stocks. And while we’re only 8 trading days into the month, with another 13 left, September was – and maybe still is – on track to make those worries seem pretty well-founded.

No, the sky is not falling, but over the past 5 trading days as of September 11^th, we saw a 3-day tech sell-off, a one-day tech jump, and another tech sell off that saw NASDAQ move into correction territory twice this week (and stay there at week’s end).

As was the case last week, there is plenty of debate as to whether this week’s sell off was more profit-taking after August closed, mutual fund managers window-dressing their month-end holdings or just a normal sell-off. But the glass-half-empty bears are starting to stir.

Consumer Price Index Increases in August

On Friday, the Bureau of Labor Statistics released CPI numbers and it was kind of mixed, with some strong readings (used vehicles) and some not-too-strong readings (shelter and food). From the release:

“The Consumer Price Index for All Urban Consumers increased 0.4 percent in August on a seasonally adjusted basis after rising 0.6 percent in July. Over the last 12 months, the all items index increased 1.3 percent before seasonal adjustment.

The monthly increase in the seasonally adjusted all items index was broad-based; a sharp rise in the used cars and trucks index was the largest factor, but the indexes for gasoline, shelter, recreation, and household furnishings and operations also contributed. The energy index rose 0.9 percent in August as the gasoline index rose 2.0 percent. The food index rose 0.1 percent in August after falling in July; an increase in the food away from home index more than offset a slight decline in the food at home index.”

Small Businesses More Optimistic

The National Federation of Independent Business released the Small Business Economic Trends data on September 8^th and reported that:

“The NFIB Optimism Index increased 1.4 points in August to 100.2, a reading slightly above the historical 46-year average. Seven of the 10 Index components improved, two declined, and one was unchanged.”

The NFIB also reported that:

• Earnings trends over the past three months improved seven points to a net negative 25% reporting higher earnings.
• Job openings increased three points to 33% of firms with at least one unfilled position.
• The percent of owners thinking it’s a good time to expand increased one point to 12%.
• Real sales expectations in the next three months decreased two points to a net 3%.

MBA Mortgage Applications are Up

The Mortgage Bankers\’ Association compiles various mortgage loan indices and the Market Composite Index measures the volume of applications at mortgage lenders. On September 9^th , the MBA reported that:

• The Market Composite Index increased 2.9% on a seasonally-adjusted basis from the previous week (it was 2% on an unadjusted basis).
• The Refinance Index increased 3% from the previous week and was 60% higher than the same week one year ago.
• The seasonally adjusted Purchase Index increased 3% from last week and the unadjusted Purchase Index was up 0.2% from last week but up a whopping 40% from the same week one year ago.

Sources:

Nfib.com; mba.org; bls.gov; fidelity.com; msci.com; Nasdaq.com; wsj.com; Morningstar.com