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Markets fall, investors become cautious

September 15, 2020


  • Equity markets saw their worst week since June and the second-consecutive loss, as investor sentiment has quickly shifted from optimistic to cautious. Daily volatility has also seen a notable shift, with the S&P 500 IndexTM experiencing five greater than 1% directional moves in the past seven sessions (three greater than 2%), after seeing just three in all of August. Markets are attempting a rebound on Monday in response to vaccine hopes and M&A news.
  • Technology companies that have driven the 84% rebound since March have led the recent decline, with the NASDAQ transitioning from a record high to a 10% correction in just three sessions. The consolidation of weight in the major indexes among the largest names works the same way on the way down as it does on the way up, resulting in heightened volatility. The largest six technology names went from $5 trillion at the beginning of the year to a peak of $8.2 trillion. It lost $1.1 trillion before recovering over the past six sessions.
  • The shift in risk appetite among investors is clear outside of the equity market, with crude prices at the lowest level since June on warnings from the IEA over demand. The dollar index had stabilized following a steady decline since March, as investors weigh the challenges facing the U.S. from a fiscal and monetary sense against the rest or the world that is seeing increased coronavirus cases.


  • Economic data continues to largely surprise to the upside, with the Citi Economic Surprise Index at 180, though it has declined from the record 255 in late August. The Atlanta Fed’s GDPNow model now forecasts third-quarter growth of 31%, though economists don’t expect to eclipse pre-crisis levels until early 2022. Initial and continuing unemployment claims remain stubbornly high and small businesses remain nervous. The Consumer Price Index surprised to the upside, growing 1.3% from a year ago, driven largely by higher oil prices. Core CPI (ex. food & energy) jumped 1.7% versus last year, led by a 2.3% rise in shelter, along with used cars and apparel. This followed yesterday’s report on PPI that surprised to the upside.
  • The House of Representatives returns from recess today, though the hopes for an additional round of stimulus continue to fade. Senate Democrats blocked the “skinny” GOP proposal last week in hopes of forcing compromise on a larger bill. A $1.1 trillion gap remains between the two sides, with the partisan divide complicating the discussions.
  • The global economy continues to bounce from the collapse in the spring, though a recent rebound in coronavirus cases puts the recovery at risk. Western Europe surpassed the U.S. in new daily Covid-19 infections, re-emerging as a global hot spot after bringing the pandemic under control earlier in the summer. Purchasing manager data measured by IHS Market showed global activity at a seven-month high, but stress in areas impacted by a second wave of coronavirus cases, including Japan, India, Spain and Italy.

What to Watch

  • A busy week of data awaits, led by industrial production on Tuesday, retail sales on Wednesday, housing starts on Thursday, and consumer sentiment and leading indicators on Friday.

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  • This material is not a recommendation to buy, sell, hold or roll over any asset, adopt an investment strategy, retain a specific investment manager or use a particular account type. It does not take into account the specific investment objectives, tax and financial condition, or particular needs of any specific person. Investors should work with their financial professional to discuss their specific situation.

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