September 2020 Market Commentary: Volatility Dominates Headlines

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The market built on strong August performance in the first few days of September, with all three major indices touching all-time highs as stimulus hopes and optimism surrounding a potential COVID-19 treatment buoyed equity prices. The looming election cycle, resurgent COVID-19 second-wave fears, and a growing stalemate on additional federal stimulus took prices lower over the course of the month, as the possibility of a contested Presidential race clouded market participant’s outlook. It’s clear that for the short-term the market will be fluctuating on all things stimulus-related, but November looms large with uncertainty – which generally unsettles the equity markets.

The passing of Justice Ruth Bader Ginsberg on September 18th complicated the political landscape significantly as both parties jockeyed over the implications of her replacement. With Washington so divided, and a particularly divisive election drawing near, bracing for market volatility is prudent – particularly as the calendar year collapses in the 4Q and asset managers and traders seek to lock profits on one of the wildest years in stock market history.

From a sector perspective, the largest implications have come (yet again) from the tech equities. The “FAANG” stocks – Facebook, Apple, Amazon, Netflix, and Google – have been highly trafficked in this year as the emergence of millennial day-traders via user-friendly trading apps like ‘Robin Hood’ and fractional share ownership have upended the more traditional market participant makeup. The FAANG equities have driven the lion’s share of S&P 500 performance this year and have been darlings of the retail and day-trading crowd. Monitoring technical corrections (a -10% fall from the previous high) in these universally owned companies is important in gauging market momentum and direction – and the Nasdaq Composite’s recent action is noteworthy following months of irrepressible gains.

As if the market needed additional indication that the election cycle and stimulus banter will be driving the price action in the short term, September closed the month with the much-anticipated Trump/Biden debate. The current climate does not seem to offer any moderate positioning, as opinions have migrated towards the extremes. Our economy and country are facing tremendous challenges, and the lack of bipartisan coordination is worrisome, regardless of the resilience in equity markets. The longer Main and Wall Street’s diverge, the more precarious equity market exposure will feel. However, equity prices have become detached from historical fundamental metrics. Drivers of which include negative to low yields across the fixed income landscape, the reliance on Modern Monetary Theory’s never-ending ‘free’ money and the popular Wall Street concept that ‘There Is No Alternative’ (TINA) which suggests investors may buy equities because other investment opportunities appear worse. With projections that millions of Americans will be food-insecure by the end of 2020, local small businesses shuttering across America, and a hospitality industry facing enormous challenges with capacity restrictions heading into the winter (no amount of heat lamps will make outdoor dining tenable) it is easy to feel pessimistic about the outlook heading into year-end and beyond. We can only hope for a ‘smooth’ election cycle that goes uncontested in the courts and is executed efficiently – the likelihood of which seems an extraordinarily heavy lift at this moment in time.

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