September 18, 2020 Weekly Market Update. For the week, the Russell 2000 benefitted as investors rotated into undervalued stocks by jumping +2.64% while the S&P 500 lost -0.64%, the Nasdaq fell 0.56% and the Dow Jones finished about flat. Investor focus continues to be on another round of prospective stimulus, vaccines, election and finally the “valuation” word has surfaced this week. We are not raging bulls here as we are only getting any new equity market exposure for clients by using defined outcome ETFs that have loss protection buffers, while enabling additional equity exposure. Yes, the tech sector is both rich and lofty but from a historical perspective it is still dwarfed by the prior peak of 2000 peak at 57x; between 1995 and 2000, the Nasdaq Composite stock market index rose 400%. It reached a price–earnings ratio of 200. What is also distinctly different from 2000 and today is interest rates now are 0.69% (10-yr treasury) versus well over 6% back in 2000. This means two things: (1) the valuation discount rate enables a higher discounted cash flow valuation than past and 2) the alternative investments environment of bonds is not an attractive draw from equities, which is part of the reason new cash inflows have been redirected towards stocks. There is also a big future catalyst for equities and that is a “reliable” vaccine. Other impactful news on the capital markets include the Fed’s commentary that indicated an uncertain pace of economic recovery while it encouraged more government relief and sustained hype-low rates for years, along with the much awaited coronavirus relief bill still be held-up by opposing party political forces.
September 11, 2020 Weekly Market Update. The tech-heavy Nasdaq fell -3.3% for the week, as the top five stocks took a pause and retreated from past highs; Amazon, Microsoft, Apple, Facebook and Google comprise over one-quarter of the market capitalization of the S&P 500 Index. Meanwhile the S&P 500 dropped -2.3% and the Dow Jones Industrial dropped -1.8% for the week. Normally when market internals deteriorate like this and the leaders begin to abate (last week they started to falter), a correction or prolonged consolidation becomes likely. Indeed, the Nasdaq has moved into correction (minus 10% range) phase and typically these allow new bases to be built in leaders (or new rotational sector leaders) set to continue to lead. Certain investor sentiment factors have also been clouded with a failed Congressional stimulus relief package and Dr. Fauci’s view that covid-19 vaccine may not be available until later than expected (& needed); instead of by October vaccine guidance has been pushed out to the end of year, or early next year. The consumer has nonetheless stayed resilient as evidenced by the Auto and Housing sectors.
September 5, 2020 Weekly Market Update. For the week, tech stocks led the market lower with the Nasdaq losing -3.27% followed by the S&P 500 -2.31% and the Dow Jones Industrial Average -1.82%. After investors have been binge buying tech favorites to excess causing unsustainable valuations with the Fab Five (FB, MSFT, APPL, GOOG & AMZN) it is only natural that the markets let out some steam going into the long holiday weekend. In turn, other companies tied to the economy reopening, experienced an uptick like Carnival Cruises +5% and Macy’s +8%, a sign of some healthy sector rotation in play. The number of first-time unemployment filings decelerated again to for the week of Aug 29 at 950,000, which moved the unemployment needle below 10% for the first time since March. We used the market weakness as an opportunity to buy a newly priced defined outcome ETF which provides 10% targeted downside buffer with uncapped upside of 87%-89% S&P 500 return participation and fully tradable liquidity.