U.S. STOCK MARKETS MIXED AS SMALL-CAPS OUTPACE LARGER-CAPS AND VALUE NAMES OUTPACE GROWTH NAMES

Weekly Market Update – Sept 21, 2020

• It was a mixed week for U.S. stocks, as small caps snapped a two week losing streak and the larger caps extended their losing streak to three weeks
• The smaller-cap Russell 2000 jumped 2.6% while the three major large cap indices all pulled back, with the S&P 500 and NASDAQ dropping 0.6% each and the DJIA losing a few points and -0.03% on the week
• Investors were hoping for a turnaround this week and it started that way until mid-week when the Fed kept rates unchanged and suggested that they might remain near zero through 2023
• In a reversal from past weeks, Energy was up 2.9%, followed by Industrials (up 1.5%) and Health Care (up 0.8%) while Communication Services dropped 2.3% and Consumer Staples lost 1.7%
• In stock-specific news, the Trump administration announced that Chinese-owned TikTok and WeChat will be banned from U.S. downloads starting this Sunday
• In another reversal from past weeks, the price of oil jumped 3.75% and ended north of $41/barrel
• U.S. Treasuries traded flat most of the week as the 2-year Treasury yield was unchanged at 0.13% and the 10-year inched up two basis points to 0.69%

Stocks Finish the Week Mixed as end mixed as value outperforms

Equities were mixed for the week, with the smaller-cap names outpacing their larger cap siblings, a reversal of most of the past couple of weeks, months and years. In addition, the value names outpaced the growth names on the week, another reversal. And to top it off, the Energy sector was the leading sector of the 11 S&P 500 sectors, driven by an uptick in the price of oil.

While the week brought continued positive economic news, Wall Street seemed to sour on what didn’t happen as the Fed decided to not mess with rates at all and leave them unchanged. Further, the Fed signaled that rates will be low for 2022 and likely into 2023. While both movers were widely anticipated, Wall Street didn’t particularly like the no-news announcement, especially the Financial sector stocks.

Some of the mega-cap names had a rough week, with Apple dropping close to 5% and Facebook losing value on rumors that the Federal Trade Commission was preparing to file antitrust action against the social media giant.

Import and Export Prices Rising

On Tuesday, September 15^th, the Department of Commerce reported that:

• Prices for U.S. imports advanced 0.9% in August, after rising 3.3% from April to July. Prior to that, import prices decreased 5.6% from January to April. Despite the recent increases, U.S. import prices declined 1.4% for the year ended in August.
• The price index for U.S. exports increased 0.5% in August, after advancing 0.9% in July and 1.8% in June. U.S. export prices declined 2.8% over the past 12 months, the smallest over-the-year decrease since February 2020.

Retail Sales Beyond Pre-COVID Levels

On September 16^th, the Census Bureau issued a press release that can be summarized as follows: retail sales have been leading the 2020 recovery and since June have exceeded February’s pre-COVID levels.

Specifically:

• Advance estimates of U.S. retail and food services sales for August 2020 were $537.5 billion, an increase of 0.6% from the previous month and 2.6% above August 2019.

• Total sales for the June 2020 through August 2020 period were up 2.4% from the same period a year ago.

• Retail trade sales were up 0.1% from July 2020 and 5.1% above last year.
• Nonstore retailers were up 22.4% from August 2019, while clothing and clothing accessories stores were down 20.4% from last year.

Consumer Sentiment Improves

The University of Michigan said the preliminary reading of its U.S. consumer sentiment index in September was 78.9, up from 74.1 the month before.

The University also released this statement too:

“Consumer sentiment improved in early September, reaching the top of the range it has traveled since April. While the recent gain was consistent with an unchanged flat trend, the data indicated that the election has begun to have an impact on expectations about future economic prospects. The Michigan surveys have traditionally asked consumers which candidate they thought would win the election, not whom they favored or how they intended to vote. The data from July to September indicate a virtual tie.

This question has been asked since Carter ran against Ford in 1976, and in every presidential election, consumers correctly chose the winner, save one: when Trump ran against Clinton in 2016, two-thirds of consumers expected a Clinton victory. In one other election had the data been as close as now – in the 1980 election that had Reagan over Carter by one percentage point.

Note that the September gains were primarily in the outlook for the economy, and it was Democrats that posted gains in economic prospects while optimism about the economy weakened among Republicans. When consumers were directly asked which candidate would be better for the economy and for their personal finances, Trump was chosen over Biden as more likely to benefit the economy and their finances, although most consumers said there was no difference with regard to their own finances. Over the next several months, there are two factors that could cause volatile shifts and steep losses in consumer confidence: how the election is decided and the delays in obtaining vaccinations.”

Sources:

Census.gov;; bls.gov; fidelity.com; msci.com; Nasdaq.com; wsj.com; Morningstar.com; umich.edu