This Week's Market Moves | September 21, 2020

Stocks finished the week modestly lower, as investors reduced their bets on the tech giants and rotated into sectors which lagged during the market recovery. Here are some other insights on the market and economy from this past week:

Stocks declined for the third consecutive week, with the S&P 500 Index down 0.6%, the tech-heavy Nasdaq off 0.5%, and the Dow marginally negative. The performance of the equity benchmarks has been driven lower by the recent sell-off in technology stocks. The quarterly expiration of key futures and options contracts, known as quadruple witching, also led to increased volatility at the close of the week.

The big-tech market leaders continue to give up some ground, as investors begin to pay attention to the high concentration of the Top 5 stocks in the S&P 500 Index and their frothy valuations. Since the beginning of September, investors have rotated out of high-flying tech stocks into industrials, materials, small caps and value stocks, which have lagged considerably during the massive rally off the March lows.

U.S. Treasury yields continue to trade in a tight range, with 2-year Treasury yields closing the week largely unchanged at 0.14% and 10-year Treasuries up two basis points to 0.70%. While shorter-maturity Treasury yields remain anchored by the Fed’s zero interest rate policy, longer-maturity yields have crept modestly higher, as the market anticipates the Fed will be more tolerant of inflation, given their recent policy shift.

The European Union (EU) is showing leadership and commitment on the climate front. This week, the EU announced that it is considering selling green bonds as part of its 750 billion EUR pandemic recovery fund. This move would significantly boost the green bond market, which has already seen huge demand and tremendous growth in recent years.

The Federal Reserve maintained its dovish stance at their policy meeting this week, signaling that interest rates may remain near zero through at least 2023 to help the U.S. economy recover from the coronavirus pandemic. Big changes were noted in the Fed’s economic forecasts. Policymakers now project unemployment at 7.6% at the end of 2020, down from 9.3% back in June, and calendar-year growth at -3.7%, up from -6.5% in June. However, Fed Chair Powell highlighted that the economy’s faster-than-expected recovery may not be sustainable.

Retail sales bounced back to their pre-pandemic level just a few months after slumping to a seven-year low as the coronavirus forced a widespread shutdown of the U.S. economy. This is good news, since consumer spending makes up just under 70% of U.S. economic growth. However, the weaker-than-expected August report suggests the easy gains are behind us now that the government’s $600/week pandemic unemployment assistance checks have ended.

U.S. jobless claims remained below the 1 million mark for the third consecutive week, falling slightly to 860,000. While the gradual improvement is encouraging, the current reading remains higher than 665,000 claims filed in the worst week during the Great Recession. Continuing claims, or the total number of Americans receiving unemployment benefits, also modestly declined to 12.7 million.

The University of Michigan Consumer Sentiment Index rose to 78.9, its highest level since March. While the improvement is encouraging, the Index remains well below the 100 level that prevailed before the pandemic. It will likely take a vaccine or more fiscal relief from the government to fully restore consumer confidence.

After months of failed negotiations, the White House opened the door to reviving stimulus talks between the House Democrats and Senate Republicans. While Congressional leaders remain deeply divided on the scale of the relief aid, both parties are working on a separate spending bill to avoid a government shutdown at the end of next month. It remains to be seen whether this will spark a move on the stalled stimulus package.

Operation Warp Speed is progressing rapidly, despite public concerns over the safety and efficacy of rushing a coronavirus vaccine. With several companies in Phase 3 trials, the White House has ramped up its efforts for the widespread distribution, which President Trump suggested could occur before the end of the year. However, the CDC has been more cautious, indicating that it may take until the second half of next year before the entire country can be vaccinated.

Indices: Core Bond: Bloomberg Barclays U.S. Aggregate Index, High Yield: ICE BofA US High Yield, Large Value: Russell 1000 Value Index, Large Blend: S&P 500 Index, Large Growth: Russell 1000 Growth, Emerging Markets, MSCI EM NR USD, Foreign Equities: MSCI ACWI Ex USA NR USD, REITs: FTSE NAREIT All Equity, Small Blend: Russell 2000

Should you have additional questions, please contact your Cammack Retirement Group consultant or Note that this article was published on September 21, 2020. Data represented is as of the publication date. The information contained herein has been obtained from sources that are believed to be reliable. However, Cammack Retirement Group does not independently verify the accuracy of this information.

Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. Opinions expressed are those of the author, and do not necessarily represent the opinions of Cammack Retirement Group.

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