The 1% Move Report

Timely commentary on market performance whenever the S&P 500 changes more than 1% in a day.






Wealth Management — September 25, 2020

What Happened in the Markets?

  • US stocks traded higher Friday as the S&P 500 rose 1.6% to close at 3,298. With the rally, the index is up 2.1% year to date. 
  • Even with Friday's rally, the S&P 500 still finished lower on the week, making it four consecutive weeks of losses for the index - the longest such stretch of index selling in more than a year. While there was no obvious catalyst to point to for Friday's rally, a rebound in mega-cap technology shares helped lead the broader market higher. Comments yesterday from the Treasury Secretary and the Speaker of the House suggesting there was still room for negotiating another round of fiscal stimulus may also have helped boost sentiment on Friday, though little progress appears to have been made to date. 
  • Ten of the 11 S&P 500 sectors were higher, with Information Technology (+2.4%) and Real Estate (+2.0%) outperforming the broader market, while Consumer Staples (+0.4%) and Energy (-0.1%) lagged.
  • Rates were lower across the curve, with the 10-year Treasury rate falling to 0.65% as of the 4 p.m. equity market close. Gold fell 0.3% to $1,862 per ounce, while WTI oil also moved lower to just above $40 per barrel; the US dollar strengthened modestly in the trading session, as measured by the US Dollar Index.

Catalysts for Market Move

US stocks traded higher on Friday as the S&P 500 rose 1.6%. The S&P 500 closed near its highs for the day with stocks rallying steadily throughout the session. However, even with Friday's rally, the S&P 500 finishes down 0.6% on the week, marking the fourth consecutive week of losses for the index. There was no obvious catalyst to point to for the day's rally, though with the S&P 500 having declined in five out of the past seven sessions, perhaps markets were due for a bounce. After a strong August, equity markets have come under pressure in September, with the S&P 500 teetering on 10% correction territory. Weakness this month began with a rotation out of technology stocks, as investors appeared to be taking profits in some of the year's biggest outperformers. Cyclical stocks largely fared better, however, until this week, as waning stimulus hopes and concerns over rising Covid-19 cases, particularly overseas, weighed on sentiment. While the S&P 500 now sits 7.9% below it's early September high, the index remains in positive territory year to date, and is also on track to end the third quarter in the green, with the S&P 500 up 6.4% quarter to date with just three trading days remaining. To that point, expect markets to focus next week on potential quarter-end rebalancing flows, as well as a busy economic data calendar, with the ISM manufacturing release due out Thursday and the September non-farm payrolls report on Friday. 

The Global Investment Committee’s Outlook

Over the past several months, the S&P 500 has traversed two-and-a-half distinct market phases. The first phase fully discounted the sudden-stop COVID-19 lockdown recession from February 19-March 23 in a -34% bear market drawdown. Second, was the repair phase, which was dominated by “do whatever it takes” and outsized policy moves by both the Federal Reserve and Congress where stimulus totaled almost 47% of GDP and was accompanied by a nearly 60% retracement of the sell-off from March 24-April 30. And, finally, the current early innings of the recovery phase, which has been characterized by the faster-than-expected reopening of the economy, has recently allowed the index to surge to new all-time highs. Although the GIC has been looking for a V-shaped recovery and a decisive shift in market leadership that has accompanied recessions in the past, and we have been well positioned for recent rotations toward small caps, value style, international stocks and cyclicals like Financials, we acknowledge that the market has moved very far, very fast. With some of the easy money having been made off the trough, we think markets remain range-bound for the next 3-6 months as the twists and turns of this particular recession with its dependency on the virus trajectory and the true pace of full economic reopening likely to be opaque and lumpy. In this environment, we are very focused on active security selection with an eye toward valuations and risk premiums in both US stocks and corporate credit. The richness, crowdedness and concentration of the S&P 500 Index, along with our belief that US Treasuries are unattractive and that the US dollar is ultimately poised to weaken, has us also pursuing high levels of asset class diversification with above-average exposures to SMID stocks, international equities and commodities.

Market data provided by Bloomberg.

Dow Jones Industrial Average (DJIA): A price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry.

NASDAQ Composite Index: A broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market.

S&P 500 Index: The Standard & Poor's (S&P) 500 Index tracks the performance of 500 widely held, large-capitalization US stocks.

US Trade-Weighted Dollar Index: A weighted average of the foreign exchange value of the US dollar against a subset of the broad index currencies that circulate widely outside the US.

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