Broker Check

Market Commentary

September 8, 2020

Stocks rise for fifth straight month; Nasdaq
and S&P 500 hit all-time highs in August

A rise in vaccine hopes, improving COVID-19 case spread data, and some better-than-expected economic data pushed Nasdaq and the S&P 500 to new all-time highs in August. Gains were robust across the board but were again led by mega-cap technology stocks and large-cap growth stocks, in general. It was the fifth straight month of gains for US stocks as risk appetites grew amid continued and unprecedented support by the Fed. According to MarketWatch, it has been the best 5-month run for the S&P 500 since October 1938. 

Overseas, developed markets jumped 4.9% and cut YTD losses to 6.2% despite a rise in COVID-19 cases that resemble a concerning second wave. Emerging markets also gained in August but their +2.2% pace lagged.  

Interest rates edged higher in August on some better-than-expected economic data, though moderate to mixed overall, and the Fed announcing a shift in its inflation targeting mandate. Essentially, the Fed will allow its 2.0% inflation target to run “above 2%” for a period to avoid deflationary risks in the economic recovery from the pandemic. The Fed also modified its stance on tight labor markets and inflation. Despite the slight rise, interest rates remained near historic lows as the Fed and its QE infinity policy continued to support the economy and fixed income markets. The benchmark 10-year Treasury Note yield closed August at 0.72%, up 0.17% for the month.  

August Quick Takes 

  • Led again by mega-cap technology stocks, Nasdaq surged 9.6% for the month reaching new all-time highs and finished +31.2% YTD
  • Stocks were very strong across the board, as the S&P 500 gained 7% and the Dow jumped 7.6%; small-caps rose 5.5% but mid-caps lagged with a +3.4% gain
  • S&P 500 joined Nasdaq with new all-time highs in August, fully recovering from the COVID-Selloff
  • Q2 corporate earnings season concluded and while year-over-year earnings plunged 33%, 84% of the S&P 500 beat lowered expectations (JPMorgan)
  • Developed Foreign markets posted solid gains of 4.9% in August, as represented by the MSCI EAFE index, while Emerging Markets added 2.2% 
  • Despite continued Fed support of the Treasury and corporate bond market, bonds dipped 0.9% and 1.9%, respectively, in August (Barclays Bloomberg US Aggregate and Corp Bond Indexes)
  • Interest rates edged higher in August though remained near historic lows, as the Fed’s balance sheet again topped $7 trillion and the 10-year T-Note yield finished at 0.72%, up 0.17% in August 

Given the above, we are cautious on the market in the short-term as risks of a pullback or correction have risen. We continue to urge discipline and to remain focused on your long-term objectives as volatility is expected to rise and likely remain elevated through the election (see 10 Things you Should Know about Politics and Investing).

  • Don’t get complacent with risk
  • Refrain from chasing returns and making large portfolio changes
  • Don’t let the election deter your long-term objectives
  • Maintain diversification and discipline
  • Stay patient with your investment strategy and program
  • Remain Positive, Stay Safe and Stay Healthy

The Outlook

Despite slipping the last day, it was the best August for stocks since 1986, as measured by the S&P 500, according to CNBC. Considering where the market was at the March 23 low, when the Fed stepped into the markets in historic fashion, it is remarkable the S&P 500 and Nasdaq hit new all-time highs in August. This is especially so, given the detachment we’ve seen of market valuations from economic fundamentals and the gravity of the COVID-19 pandemic. Since the March 23 COVID-Selloff lows, Nasdaq has gained 71.6%, while the S&P 500 has gained 56.5% ending August. While the Dow, small-caps and mid-caps remain below all-time highs, they were within 3-8%.

Congress remained on break the second half of August after failing to reach a new economic stimulus package, despite the CARES Act enhanced unemployment benefits expiring at the end of July. The $300 per week extension of enhanced unemployment benefits by executive order were expected to start at the end of August.  The House and Senate remain far apart in negotiations as the presidential election looms November 3.  With both conventions now complete, investor and media attention on the race for the White House will be heating up. Until now, the market has focused on the unprecedented market and economic support of the Fed and government along with the ebb and flow of health news.

Again, we are cautious on the market in the short-term as risks of a consolidation or pullback/correction have risen given the market is likely ahead of the economic fundamentals and health news. Longer-term, we remain optimistic as the economy reopens and recovers in addition to good health news when a vaccine (or vaccines) become available for widespread distribution. We continue to urge discipline and to remain focused on your long-term objectives.

September Update

After months of decline, market volatility has returned in September in a big way ending a 5-week winning streak for stocks. The S&P 500 slid 2.1% to start the month ending September 4, while the tech-heavy Nasdaq fell 3.9% as volatility spiked 16% to the highest levels since June. Technology stocks, which have led the market recovery, were among the hardest hit. Again, after such a strong recovery run for the market, some volatility was to be expected. Market pullbacks and corrections are normal and common as well.

It is too early to be certain of its ultimate magnitude, thus we continue to urge investors to maintain diversification and discipline with their investment strategy.

From all of us at Nelson Securities, we continue to wish you and your family good health and well-being. 

Call your Nelson Advisor today at 800-345-7593 to discuss any concerns and review your portfolio.  

~Your Nelson Securities Team   

*Past Performance is No Guarantee for Future Results