This Week in Review 9/14/2020

Keep your face to the sunshine and you cannot see a shadow. ~ Helen Keller

Another rough week led by weakness in big name Tech stocks… as Wall Street pieced together mixed economic data and watched the coronavirus stimulus bill stall in Congress once again. All four major indices posted big losses for the holiday-shortened week.

The Dow Jones Industrial Average fell 1.7% to close out the week at 27,665.64.

The S&P 500 lost 2.5% on the week to finish at 3,340.97.

While the NASDAQ continued its slide plummeting 4.1% to end the week at 10,853.55.

The struggling Russell 2000 is still down 10.2% YTD after losing 2.5% last week.

We knew that the 'tech" sector was running hot in August, and when it got into the vicinity of a 40 P/E ratio, it seemed by historical perspective to be quite overbought. The market got ahead of itself on September 2nd. As it chased all-time highs for the S&P 500 (3580) and NASDAQ (12056).

The good news is the entire market has lagged the tech sector and did not match the exuberant of tech sector valuations. The bad news is that reality set in, and somebody pushed the sell button to "cash in". In short, the market "corrected" itself.

In Jackson Hole, Mr. Powell spoke of the Feds commitment to a 0% benchmark rate and inclination to allow inflation past the 2% target rate, seeking an "average 2" versus a "limit 2."

Tech stocks logically needed to give back some gains and they did! In short, what we had last week is a healthy CORRECTION. Plain and simple, and it was overdue.

Moving forward, we remain hopeful for a COVID-19 vaccine, but more realistic in terms of a late year-end discovery rather than the rhetorical "before election" wishful thinking.

We also have to "hedge" what may be the final version of a second stimulus package. The wide margin between Republicans' $1.2 Trillion and Democrats' $2 Trillion seems it will play out to the "midnight hour" clock expiration. Even a final $1.5 Trillion compromise will have a short life, as the federal budget runs out September 30, and best-case is a 3-month continuing resolution to year end (and the election).

The "correction" has re-aligned the Dow and S&P indexes, with both of them still within striking distance of respective all-time highs. Even the year-to-date returns seem better correlated, while the NASDAQ may still seem a bit "frothy."

This isn’t a sprint… it’s a marathon!

Market Update…

• Oil Prices - West Texas Intermediate crude futures finished lower for the second week in a row at $37.33 a barrel on worries over the outlook for demand.
• Gold - Gold finished the week slightly lower and closed at $1,947.90 an ounce.
• U.S. Dollar - U.S. dollar traded slightly lower on the week.
• U.S. Treasury Rates - The yield on the benchmark 10-year Treasury finished the week lower at 0.68%.
• Asian shares were up in overnight trading.
• European markets are trading mixed.
• Domestic markets are sharply higher this morning.

We will get a look on the state of the U.S. consumer with the important retail sales report set to be released on Wednesday. This will provide real insight into the effect of Congress' inability to replace the $600 weekly enhanced unemployment benefit which expired on July 31st.

The other big news on this week's economic calendar will be the Fed's last meeting before the November election and Wall Street will look for a dovish "stay-the-course" message from Chairman Powell.

Obviously, the daily COVID-19 numbers will continue to weigh on the markets for the foreseeable future.

Stay healthy and have a great week!