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September 11 2020 Market Update

By on Sep 11 in Economics, Finance, Financial advisors, Market Update, Worth sharing

The Rally Continues Through August

The U.S. stock market finished higher for the fifth consecutive month in August as investor optimism persisted amid a tenuous economic recovery. The S&P 500 had it best August in 34 years, led by the technology sector.

The Dow Jones Industrial Average advanced 7.6 percent and became the last of the major indices to erase its 2020 losses.[1]

The Federal Reserve adopted a new policy geared toward maintaining low interest rates and maximizing employment.[2]  This — along with positive developments around COVID-19 vaccines and treatments — helped lift investor sentiment.

Yet the number of U.S. coronavirus cases hit 6 million, and consumer confidence fell last month.[3] So, what does this mean for the economy heading into the final month of quarter three?

Federal Reserve Commits to Low Rates

The Fed outlined a new policy that will allow inflation to fluctuate above 2 percent annually. Its main goal is to boost employment.

Although businesses have begun to rehire, the unemployment rate was 10.2 percent in July and 8.4 percent in August. Some industries have recovered, but some, like travel, have continued to struggle. This is important because roughly 10 percent of U.S. jobs relate to the travel industry.[4] 

The Fed reiterated its commitment to low interest rates and said it will not raise rates even as employment improves and inflation rises. This suggests the current near-zero short-term rates could persist for years.[5] It bodes well for corporations, which will be able to continue to borrow money at historically low rates to support their growth initiatives. It may also be a boon to consumers who could enjoy low rates on mortgages and auto loans for the foreseeable future.

Consumer Confidence Wanes

Consumers have provided resilient support to the U.S. economy. Consumer spending rose for the third straight month in July despite the high unemployment. Federal unemployment benefits have been a big part of the reason, but lawmakers have yet to agree to a new stimulus package following the expiration of the weekly $600 unemployment benefit.

Meanwhile, consumer confidence waned in the last weeks of summer. The Conference Board’s monthly gauge of consumers’ attitudes and intentions to make purchases fell to 84.8 in August from 91.7 in July. This may reflect the challenging labor market and the lack of a new stimulus package.

Personal income rose a modest 0.4 percent in July after two months of decline. Personal income and spending data will likely need to remain favorable for the economy to end the third quarter on a strong note.[6]

Implications for Investors

The United States hit 6 million coronavirus cases on August 30, and new cases were up by at least 5 percent in more than half of U.S. states.[7] This serves as a sobering reminder to investors that the pandemic may be far from over. The August market rally coincided with a declining trend in the seven-day average of daily reported COVID-19 cases. A reversal of this trend could potentially derail the five-month streak of market green.

With schools reopening and fall flu season ahead, the course of the pandemic is unknown. Similarly, with election season around the corner, we could see market moves that coincide with the political process.

We believe that investors should maintain prudence and caution, remaining disciplined to the principle of diversification.

The market looked strong going into September, but as the September 4 decline of 3.5 percent in the S&P 500 demonstrates, that can change in a heartbeat.[8] The decline was driven primarily by the technology sector, just as the rally that preceded it. As we have noted before, the weighting of technology companies increased significantly in the S&P 500 this year.

The weight of one sector in an index can mask large differences in performance between sectors. For instance, at the end of August, energy stocks were down 42 percent and financials down 19 percent for the year. But the S&P technology and consumer discretionary sectors were up 35 percent and 27 percent, respectively, which pushed the index up to pre-pandemic levels.[9]

Similarly, when tech stocks fell, it pushed the whole index down.

These statistics reinforce the importance of diversification at both the asset class and individual holding levels. With tax season not too far off, and potential looming changes to tax laws in 2021, we think it’s a good time to start planning ahead. We are here to help support your tax strategy as well as review potential tax minimization strategies.

In the meantime, please reach out to us with your questions and concerns. While the year’s events (and markets) have been volatile, our presence and our commitment to helping you navigate these challenging times is unwavering.

JSF Financial


Securities are offered through Mid Atlantic Capital Corporation (“MACC”) a registered broker dealer, Member FINRA/SIPC.

Investment advice is offered through JSF Financial, LLC, which is not a subsidiary or control affiliate of MACC.

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The information expressed herein are those of JSF Financial, LLC, it does not necessarily reflect the views of Mid Atlantic Capital Corporation (MACC). Neither JSF Financial LLC nor MACC gives tax or legal advice.  All opinions are subject to change without notice.  Neither the information provided, nor any opinion expressed constitutes a solicitation or recommendation for the purchase or sale of any security.  Investing involves risk, including possible loss of principal.  Indexes are unmanaged and cannot be invested in directly.

Historical data shown represents past performance and does not guarantee comparable future results.  The information and statistical data contained herein were obtained from sources believed to be reliable but in no way are guaranteed by JSF Financial, LLC or MACC as to accuracy or completeness. The information provided is not intended to be a complete analysis of every material fact respecting any strategy.  The examples presented do not take into consideration commissions, tax implications, or other transactions costs, which may significantly affect the economic consequences of a given strategy. Diversification does not ensure a profit or guarantee against loss. Carefully consider the investment objectives, risks, charges and expenses of the trades referenced in this material before investing.

Asset Allocation and Diversification do not guarantee a profit or protect against a loss.

The Bloomberg Barclays U.S. Aggregate Bond Index measures the investment-grade U.S. dollar-denominated, fixed-rate taxable bond market and includes Treasury securities, government-related and corporate securities, mortgage-backed securities, asset-backed securities and commercial mortgage-backed securities.

The S&P 500 Index is an unmanaged, market value-weighted index of 500 stocks generally representative of the broad stock market.

The MSCI World Index is a broad global equity index that represents large and mid-cap equity performance across 23 developed markets countries and covers approximately 85% of the free float-adjusted market capitalization in each country.

The MSCI Europe Index captures large and mid cap representation across 15 Developed Markets countries in Europe and covers approximately 85% of the free float-adjusted market capitalization across the European Developed Markets equity universe.

The MSCI Emerging Markets Index captures large and mid-cap representation across 26 emerging markets countries and covers approximately 85% of the free float-adjusted market capitalization in each country.

VIX is the ticker symbol and the popular name for the Chicago Board Options Exchange‘s CBOE Volatility Index, a popular measure of the stock market‘s expectation of volatility based on S&P 500 index options. It is calculated and disseminated on a real-time basis by the CBOE, and is often referred to as the fear index or fear gauge.

[1] https://www.marketwatch.com/story/stock-index-futures-mostly-higher-dow-on-track-to-erase-2020-loss-2020-08-28

[2] https://www.barrons.com/articles/the-fed-unveils-its-everything-old-is-new-again-monetary-policy-51598638387

[3] https://www.reuters.com/article/us-health-coronavirus-usa/u-s-coronavirus-cases-approach-6-million-as-midwest-schools-face-outbreaks-idUSKBN25Q0KS

[4] https://apnews.com/6b815d0f76ee3e5bc950a5102faf8337#:~:text=About percent2010 percent25 percent20of percent20all percent20jobs,presage percent20bankruptcies percent20and percent20business percent20closures.

[5] https://www.cnbc.com/2020/08/31/the-fed-could-be-locked-into-zero-rates-for-five-years-or-even-longer.html

[6] https://www.cnbc.com/2020/08/28/personal-income-july-2020.html

[7] https://www.cnbc.com/2020/08/31/coronavirus-cases-are-on-the-rise-again-across-more-than-half-of-the-us.html

[8] https://www.nytimes.com/2020/09/03/business/stock-market-shares-covid.html

[9] https://eresearch.fidelity.com/eresearch/markets_sectors/sectors/si_performance.jhtml?tab=siperformance

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