This Week's Market Moves | September 9, 2020
With the sudden sell-off in the market last week but improving jobs data, there is once again uncertainty as to the state of the market and economy. Here are some other insights from this past week:
After a five-month, largely uninterrupted rally, the S&P 500 Index gained around 60% from its March 23rd low as of last Wednesday. This spectacular rise has driven the Index to its highest multiple since the dot-com era. However, on Thursday, there was a major sell-off, as investors abandoned the large technology stocks that have fueled the market’s rebound. Over the course of Thursday and Friday, the S&P 500, Nasdaq, and Dow Jones slipped -2.27%, -3.25%, and -1.73% respectively. This sudden market volatility may be due to Japan’s SoftBank purchasing billions of dollars in options of individual tech stocks, making broader market swings more likely. As of Friday’s close, the 12-month forward estimate for the S&P 500 was 25.64.
After Apple and Tesla announced their stock splits, their share prices have gone parabolic. Since Apple announced its four-for-one stock split on July 30th, its share price surged around 25% after last week’s sell-off. Tesla’s shares have risen more than 50% since the company’s five-for-one stock split announcement on August 11th. Stock splits divide a company’s existing shares into multiple new shares at a lower price, it does not make a company more valuable.
With the release of more positive job market data, 10-Year Treasuries traded at 0.72% on Friday, compared to 0.621% at Thursday’s close. This positive note ended an almost five-day streak of declines for the 10-Year Treasury. The 30-Year Treasury also rose from 1.34% to 1.46%. These results further the expectations that the gap between long-term and short-term Treasuries will grow. Other events that may push yields higher this month will be the next Federal Open Market Committee (FOMC) meeting and any new fiscal stimulus from Congress. Investors will be looking for more guidance from the Federal Reserve following the change in practice of lifting rates to combat inflation.
According to Bank of America/Merrill Lynch, a whopping 79% of S&P 500 equities have dividend yields that exceed the 10-Year Treasury note. This is not all that surprising given how low U.S. Treasury and corporate bond yields are these days. However, this is not great news for income-oriented investors who are being forced to take on more risk in a quest for seemingly attractive yields.
The once prominent energy sector has had a terrible decade. The energy sector was once considered the darling of Wall Street, but it is now one of the most unloved sectors in the Index, as oil prices have moved sharply lower from their peak of nearly $150 per barrel in 2008. Back then, the energy sector made up nearly 17% of the S&P 500 Index; today it represents less than 3%. It is also worth noting that Exxon Mobil, which was once considered one of the largest companies in the world, just got booted out of the Dow Jones Industrial Index in their latest reshuffling.
There is hardly a question that has more significance to the markets right now than the outlook for inflation. The Fed’s decision to adopt a policy that targets average inflation, as opposed to maintaining its strict 2% target, has only added fuel to the raging debate. Those that expect higher inflation point to the rapid expansion in money supply, overly accommodative Central Bank, and supply shocks. Others who expect inflation to remain muted as the economy attempts to recover from the pandemic point to the fact that money is not circulating. Only time will tell which school of thought is correct.
The economy showed slight improvements in terms of jobless claims, as they fell by 130,000 at the end of August. About 29 million people were receiving state and federal assistance by the middle of August, and the number of people claiming pandemic-related assistance has also increased within recent weeks. Although the economy is healing, these appear to be signs that the process is beginning to stagnate.
The labor market had another month of strong gains, adding 1.37 million jobs in August, with the unemployment rate falling to 8.4%. Approximately 240,000 of the added jobs are temporary positions to help conduct the U.S. Census. With economies reopening, institutions such as schools, small businesses, and retail stores have contributed the most to the growing jobs numbers. In fact, the amount of people working for small businesses is now equal to 77% of the total amount that were working in January. While this is encouraging, temporary layoffs are increasingly becoming permanent, as the continued uncertainty about the coronavirus pandemic makes a swift return to normalcy less likely.
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 info@cammack retirement.com. Note that this article was published on September 8, 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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