Monthly Economic Update

In this month’s recap: Stocks dropped during the month as investors worried about stalled fiscal stimulus talks in Washington, the upcoming election, and new coronavirus cases in Europe.

U.S. Markets

Stocks dropped in September as investors worried about stalled fiscal stimulus talks in Washington, the upcoming election, and new coronavirus cases in Europe.

The Dow Jones Industrial Average, which lagged this year slipped 2.28 percent. The Standard & Poor’s 500 Index lost 3.92 percent and the Nasdaq Composite declined 5.16 percent.1

TECH Stocks Under Pressure

After a strong rally in August, investor sentiment quickly turned negative as technology stocks dragged down the overall market.

The retreat in the technology sector gathered steam as the month wore on, sending the tech-heavy Nasdaq Composite into correction territory over a three-day span following a recent record high. A correction is defined as a decline of at least 10 percent but not more than 20 percent from a recent high.2

A Few Bright Spots

The month did offer moments of optimism, however, that sparked brief rallies, such as an increase in merger and acquisition deals and further reported progress on a COVID-19 vaccine. However, concerns about the November election, the fading hopes for a fiscal stimulus bill, and an increase in European COVID-19 cases weighed heavily on investor sentiment.

As September came to a close, the market cut its losses, surging on the final two days of trading as legislators appeared to reopen fiscal stimulus talks.

Sector Scorecard

All 11 industry sectors were lower in September, with losses in Communication Services (−6.61 percent), Consumer Discretionary (−3.15 percent), Consumer Staples (−3.71 percent), Energy (−17.56 percent), Financials (−6.35 percent), Health Care (−3.87 percent), Industrials (−2.04 percent), Materials (−1.52 percent), Real Estate (−4.05 percent), Technology (−6.03 percent), and Utilities (−0.37 percent).3

What Investors May Be Talking About in September

The housing sector has been a bright spot in a challenging year and has seen strong consumer demand thanks to historically low interest rates.

Home building and home sales have set new records in recent months, while home builder confidence is at an all-time high. The National Association of Home Builders/Wells Fargo Housing Market Index posted a reading of 83 out of a possible 100 in September, well above its previous record high of 78.4,5

Housing accounts for 15 percent of the nation’s gross domestic product, so investors may watch for the sector to retain its momentum in the fourth quarter and into 2021.6

World Markets

International markets struggled amid more coronavirus cases in Europe and concerns over the tensions between the U.S. and China.

The MSCI-EAFE Index fell 2.20 percent in September.7

European markets were broadly weaker. France dropped 2.91 percent, Germany lost 1.43 percent, and the U.K. slipped 1.68 percent.8

Pacific Rim stocks were mixed as Australia fell 4.04 percent and Hong Kong declined 6.82 percent. Japan notched a solid gain, tacking on 9.68 percent.9

Indicators

Gross Domestic Product: The final reading of the second-quarter GDP showed an annualized decline of 31.4 percent.10

Employment: The unemployment rate dropped to 8.4 percent as employers added 1.4 million jobs in August.11

Retail Sales: Retail sales growth slowed in August, rising only 0.6 percent as the supplemental unemployment benefits expired at the end of July. The benefits helped buyers in prior months.12

Industrial Production: Industrial output rose 0.4 percent, below economists’ expectations of a 1 percent increase.13

Housing: Housing starts fell 5.1 percent after sharp gains in the previous three months. Single-family home starts increased by 4.1 percent, but the overall result was dragged down by a 22.7 percent decline in multi-family starts.14

Existing home sales rose 2.4 percent from July and were 10.5 percent higher than August of last year.15

Sales of new homes rose to their highest level in almost 14 years, posting a 4.8 percent increase from the previous month.16

Consumer Price Index: Consumer prices jumped 0.4 percent in August, led by the sharpest increase in the cost of used cars and trucks in more than 50 years. On a year-over-year basis, inflation rose 1.3 percent.17

Durable Goods Orders: For the fourth straight month durable goods orders rose, increasing by 0.4 percent in August. New orders for nondefense capital goods, excluding aircraft, jumped 1.8 percent.18

The Fed

The Federal Reserve signaled that interest rates would likely not increase until 2023 following its two-day Federal Open Market Committee (FOMC) meeting that ended on September 16.19

Fed officials also stressed the importance of additional fiscal stimulus.19

Fed officials adjusted their outlook for unemployment, predicting it would average between 7 and 8 percent in the final three months of the year. Previously, Fed officials had expected unemployment of between 9 and 10 percent in the final calendar quarter of 2020.19

MARKET INDEX Y-T-D CHANGE
DJIA -2.65% -2.28%
NASDAQ 24.46% -5.16%
S&P 500 4.09% -3.92%
BOND YIELD Y-T-D
10-YR TREASURY -1.24% 0.69%

Sources: Yahoo Finance, September 30, 2020

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends. 10-year Treasury real yield = projected return on investment, expressed as a percentage, on the U.S. government’s 10-year bond.

Focused Wealth Management Disclosure

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. The information herein has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All market indices discussed are unmanaged and are not illustrative of any particular investment. Indices do not incur management fees, costs, or expenses. Investors cannot invest directly in indices. All economic and performance data is historical and not indicative of future results. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is a market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The CBOE Volatility Index® (VIX®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The FTSEurofirst 300 Index comprises the 300 largest companies ranked by market capitalisation in the FTSE Developed Europe Index. The FTSE 100 Index is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization. Established in January 1980, the All Ordinaries is the oldest index of shares in Australia. It is made up of the share prices for 500 of the largest companies listed on the Australian Securities Exchange. The S&P/TSX Composite Index is an index of the stock (equity) prices of the largest companies on the Toronto Stock Exchange (TSX) as measured by market capitalization. The Hang Seng Index is a free float-adjusted market capitalization-weighted stock market index that is the main indicator of the overall market performance in Hong Kong. The FTSE TWSE Taiwan 50 Index is a capitalization-weighted index of stocks comprises 50 companies listed on the Taiwan Stock Exchange developed by Taiwan Stock Exchange in collaboration with FTSE. The MSCI World Index is a free-float weighted equity index that includes developed world markets and does not include emerging markets. The Mexican Stock Exchange, commonly known as Mexican Bolsa, Mexbol, or BMV, is the only stock exchange in Mexico. The U.S. Dollar Index measures the performance of the U.S. dollar against a basket of six currencies. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. MarketingPro, Inc. is not affiliated with any person or firm that may be providing this information to you. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

Citations.

  1. The Wall Street Journal, September 30, 2020
  2. Barrons.com, August 6, 2020
  3. MarketWatch.com, September 12, 2020
  4. FastSet Research, September 30, 2020
  5. CNBC.com, September 22, 2020
  6. EyeOnHousing.com, September 16, 2020
  7. Federation of American Scientists, October 2, 2019
  8. MSCI.com, September 30, 2020
  9. MSCI.com, September 30, 2020
  10. MSCI.com, September 30, 2020
  11. CNBC.com, September 30, 2020
  12. The Wall Street Journal, September 4, 2020
  13. The Wall Street Journal, September 16, 2020
  14. The Wall Street Journal, September 15, 2020
  15. CNBC.com, September 17, 2020
  16. CNBC.com, September 22, 2020
  17. CNBC.com, September 24, 2020
  18. CNBC.com, September 11, 2020
  19. The Wall Street Journal, September 25, 2020
  20. The Wall Street Journal, September 16, 2020