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Market Recap (September 7 2020)

September 07, 2020
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Last week began on a very positive note and by Wednesday both the S&P 500 and Nasdaq had reached new record highs. The Dow closed above 29,000 for the first time since February. And then came Thursday. The markets were hammered with tech stocks leading the decline. The rout continued on Friday although a late in the day rally moved markets off of their significant lows. Tech again led the way as all major indices posted losses for the week.
 
This volatility was driven by several factors, including:
 
1. Uncertainty on the timetable for the release of a COVID-19 vaccine. While the Centers for Disease Control (CDC) are optimistic about a vaccine being available to the public in the next month or two, Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious diseases, told CNN that that release timeline remained “unlikely.”
2. The continued trade tensions between the U.S. and China. If enacted, new tariffs would impact the overall U.S. economy, with technology stocks taking the greatest hit.
3. Pessimism over another COVID-19 stimulus bill. Earlier last week Senate Majority Leader, Mitch McConnell, said that “the cooperative spirit we had in March and April has dissipated as we move closer and closer to the election.” The market (as well as many ordinary Americans) has been hoping for another relief bill.
 
Investors also appeared to be taking profits after strong gains in July and August. The markets have done so well lately that many short-term traders are selling to capture some of those gains.
Despite the negative market performance, there was some positive economic news in the U.S. labor market: both initial jobless claims and continuing claims fell significantly. Overall unemployment fell to 8.4% in August (from 10.2% in July) and job creation topped 1.37 million – exceeding expectations.
 
This week’s volatility likely is a realization that the market may have moved too high too quickly. We’ve discussed the apparent disconnect between market performance and economic news over the past few months: these two factors may be realigning somewhat.
 
No one likes to see major market swings. They are unsettling – even scary! However, perspective does provide context. A short five months ago, markets were hammered, COVID-19 was running rampant and our economy was nearly shut down. While we have not fully recovered, we are arguably in better shape now.
 
At the risk of sounding like a broken record, our advice remains the same. How should you respond to this latest bout of volatility? Unless your risk tolerance or time horizon has changed, we urge you to stick to your investment discipline.