When August ended, stocks seemed poised to move higher. The Federal Reserve needs to keep interest rates at record levels by effectively telling investors and anyone who will listen, "Go for it."
The number of unemployed also looked better. US President Donald Trump even said the COVID-19 pandemic was over.
The third quarter ended with solid earnings for the major Wall Street averages: + 8.5% for the, + 7.6% for the and + 11% for the. In normal times, these would be great performances.
Except, of course, we don't live in normal times. That strong recovery from the March low resulted in massive gains in the second quarter.
For the month, the market performance in September proved more difficult. It started with two days of large gatherings.
COMPQ 300 minute chart / month September
But then stocks fell into an uncomfortable reality. Stock prices had soared in August that they had become expensive, and many investors decided to take their profits and stand on the sidelines.
Thus, the major averages suffered their first monthly losses since March. The S&P 500 declined 3.9%, the Dow 2.3%. The NASDAQ fell 5.2% with the declining 5.7%. These weren't the worst losses ever; March's declines were two to six times greater.
All four indexes ended Wednesday from 6% to 8%, each below their 52-week high. But the S&P 500, NASDAQ and NASDAQ 100 are still clearly higher than the year – 4.1%, 24.5% and 30.8% respectively. Still, the Dow, which entered positive ground for the year on September 1, ended the month down 2.7% for the year
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What lies ahead may depend on whether earnings on Friday, Monday and Wednesday prove to be the start of a new upward trend.
Diminishing Optimism, Increasing Tensions
Nevertheless, any uptrend will occur in a nervous environment. Optimism that drove stocks this summer and restarted around Sept. 23 will combat tensions surrounding the US election. And who knows how that situation will resolve on its own, especially given Tuesday's unprecedented debate between former Vice President Joe Biden and President Donald Trump.
The COVID-19 pandemic also continues to cause problems. The number of new cases in Europe is growing. And outbreaks in the United States have still not stabilized – nor necessarily leveled out nationally.
Earlier this week, Disney (NYSE 🙂 would lay off 28,000 employees at its theme parks because the COVID-19 virus had slammed attendance. Airlines could fire tens of thousands on Thursday because travel collapsed and new federal aid is not expected.
Restaurants, hotels, and related businesses continue to struggle, although many communities across the country have opened up their economies. A great unknown is whether employees will actually return to their offices. If they don't come back, and the work from home option becomes more the standard, look for a lot of emergency commercial real estate sales.
Pockets Of Strength Remain
But some parts of the economy are recovering relatively quickly. The hope that a vaccine against the coronavirus will be available, perhaps even this year, but more likely in 2021, is also fueling investor optimism.
JPMorgan predicted this week that the S&P 500 could rise by about 12% over the next 12 months as something resembling normal life resurfaces.
The demand for internet services is enormous. Zoom Video Communications (NASDAQ :), which developed the video technology that allows the world to communicate face-to-face without fear of spreading the virus, led the NASDAQ 100 with a 44% gain for the month.
It is also the 2020 winner so far, an increase of 590%.
Housing activity is also strong, amid rising demand for housing, especially in the suburbs, boosted by the Fed's pledge to likely maintain ultra-low interest rates for years to come.
It completed September with 0.68%, slightly lower than 0.693% in August.
Shares of homebuilder Lennar (NYSE 🙂 hit new highs for a second consecutive day, as did appliance manufacturer Whirlpool (NYSE :), whose business is closely linked to housing.
Discount store Target (NYSE 🙂 and Trupanion (NASDAQ :), which sell pet health insurance policies, also hit new highs on Wednesday. Target jumped 4.1% in September and a whopping 31.3% for the quarter. Shares of the chain are up 22.8% this year. Trupanion jumped 25.8% in September and posted a gain of 84% for the quarter and is up nearly 111% for the year.
Initial Public Offering (IPO) activity has skyrocketed. More than 145 companies that have priced IPOs, along with a host of specialty acquisition companies (SPACs) to buy companies to bring them to the markets, have grown tremendously.
Big August Rally Turned Out To Big For Some
But if it looks rosy, then why was September filled with so many whip saws? The market encountered technical resistance.
Stock prices, especially those of the glamor-tech mega-cap companies, were way ahead in July and especially in August, when stocks had their best month in at least 20 years. Profits were so great that analysts started talking about a bubble about to break.
Relative strength indexes have risen above 80 on September 2 for the major averages. An RSI is a measure of moment, and a reading greater than 75 suggests a relapse is near. Above 80 means the withdrawal will occur in a few days. The break started the next day.
Electric vehicle manufacturer Tesla (NASDAQ :), which rose 74% in August, saw its RSI hit 84 on August 28. The stock broke on September 3 and fell nearly 14% during the month.
Nevertheless, the quarter ended at 98.7% and is still 413% for the year.
Apple (NASDAQ 🙂 fell 10.2% this month and saw its market cap fall from $ 2.25 trillion to "just" $ 1.98 trillion. If it's any consolation, the tech giant ended the third quarter at 27% and is up 57.7% for the full year.
Microsoft (NASDAQ 🙂 and Amazon.com (NASDAQ 🙂 currently have the second largest market cap at $ 1.59 trillion and $ 1.58 trillion, respectively. Google (NASDAQ 🙂 is in fourth place with $ 998 billion.
Sportswear manufacturer Nike (NYSE 🙂 was the top Dow performer, up 12.8% for the month, and competed with Apple and Salesforce.com (NYSE 🙂 for the quarter.
Amazon.com, possibly the biggest pandemic winner, nevertheless struggled during the month, declining nearly 8.8% after the stock hit a high of $ 3,552.25 on September 2. Shares fell a whopping 14% on September 21, but have now recovered 6.3%. They are up 14.1% for the quarter and are up 70.4% for the year.
FedEx, UPS See Stronger Volumes
It is worth noting that FedEx (NYSE 🙂 and United Parcel Service (NYSE 🙂 were among the top performing components on the Index (DJT) are listed as consumers increasingly shopped online. FedEx was up 79.4%, with UPS up 49.9% for the quarter and 66% and 42% for the year.
The major barrier in the transport average is, of course, airlines, which have seen little recovery in passenger numbers. Airlines mothball aircraft or cancel orders for new aircraft.
Dollar stabilizes; Commodities Wavre
For much of the first half of the year, as the pandemic spread around the world, the dollar was the safe haven par excellence. The rise rose 8.6% at its peak in the first quarter, then fell 11% between March 23 and September 1 before stabilizing. It started to rise again as investors worried about stocks and put their money into bonds.
jumped 10.3% in August and ended the quarter + 5.3%. sold in the second half of September as investors appeared to be embracing the Fed's new era of lower interest rates.
traded in New York, fell nearly 5.6% over the month as concerns about global oil demand weighed on the markets. , which traders outside the US more closely, fell 7.3% this month. This year, both are down more than a third due to the impact of the pandemic on oil demand.
This recent price crash has devastated domestic oil stocks, with energy the weakest performer in the S&P 500 index year-round, down about 16% for the month, 21% for the quarter and 50.1%.
Chevron (NYSE 🙂 was down 14.1% in September and is down 40% for the full year. Exxon Mobil (NYSE 🙂 was also down 14% in September and down 50% for the full year. It was removed from the Dow Jones Industrial Average in early September and Salesforce.com was added.
Upcoming Coronavirus Vaccines May Offer Opportunities
Finally, a quick look at some of the companies working on coronavirus vaccines. The ones getting the most attention are:
Pfizer (NYSE 🙂 and the German biotech company BioNTech (NASDAQ 🙂
Johnson & Johnson (NYSE 🙂
Moderna (NASDAQ :), a biotech company based in Cambridge, Massachusetts.
Novavax (NASDAQ :), a biotech company in Gaithersburg, Md.
AstraZeneca (NYSE 🙂 and Oxford University
Inovio Pharmaceuticals (NASDAQ 🙂 in New Plymouth, Pa.
The details of how the vaccine will be manufactured and distributed remain blurred at this point. But those who execute successfully can see significant gains in their respective stocks. The vaccines may prove to be profitable for the smaller companies, but keep in mind that biotech stocks are often hugely volatile.
All of these stocks fluctuate significantly, driven by headlines and investor hopes … and disappointments. That this is happening is also a signal that it is simply not clear yet how many of these vaccines will receive regulatory approval.
But any announcements are likely to arouse much investor interest.
