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Week of September 21, 2020 Thumbnail

Week of September 21, 2020

Salutations, friends!

We hope this finds you well and staying safe.  The markets were mixed last week, as recent trend reversals continued to play out:

  • Large cap stocks pulled back modestly, marking three straight weeks of declines.
  • Small cap stocks broke higher, pushing the Russell 2000 up 2.6%.
  • Consumer sentiment improved, and retail sales exceeded February's pre-COVID levels.

A full recap of this week's events is linked in the summary below, please review it at your leisure.

For several weeks now, we have cautioned that liquidity-fueled rallies are inherently unsustainable; that idea may now be playing out in the markets as mega cap technology names appear to be losing a bit of steam.  Value stocks outperformed growth stocks last week, and energy companies enjoyed a boost from the uptick in oil prices.  More than simple sector rotation, however, investors appear to be losing confidence that our elected officials will reach a compromise and come to an agreement on the next round of fiscal support.  Additionally, COVID outbreaks are popping up across the globe, increasing the likelihood of a second round of full lockdowns.  Israel has already done so, after initially taming the virus admirably.

With the election only six weeks away, the chances of a second national quarantine here in the U.S. are remote.  But that doesn't mean that individual consumers will ignore the trends.  Indeed, people can be rationally expected to act in their own self-interest, and those micro-economic choices will reflect their concerns regarding the spread of the virus, their vulnerability to it, and available treatment protocols.  Even though economic data has recently been trending in a positive direction, much of that activity was built on federal stimulus that has now expired.  Beneath the surface, many job losses and business closures which were initially considered to be temporary have dangerously morphed into permanent losses and closures.

Summing it up, the American economy is a marvel of flexibility and resilience.  We are all adapting to the COVID reality in countless ways, and that's great.  But the foundation of any lasting and durable recovery must necessarily be built on a safe, effective vaccine.  That is the fundamental truth, and everything else until then is simply buying time.  Let's hope our leaders recognize what is at stake, and rise above partisanship to meet the occasion.

We remain vigilant, as always.  And we're here to answer your questions, review your portfolio, and update your financial plan... please don't hesitate to reach out.

Best regards,

FMA ADVISORY, INC.

Market Insights - September 18, 2020

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