Weekly Investment & Economic Talking Points – 9/24/20

Earnings releases of note this week: Nike, General Mills, Costco, Darden Restaurants (not a recommendation to buy/sell/hold any of these securities)

  1. Market recap: Last week, US Large Growth pulled back again with the Russell 1000 Growth down 0.84%.  Value stocks offered some reprieve and they returned a positive 0.52%.  Since the current bout of volatility started on 9/2/2020, the Russell 1000 Growth is down 12.13% as of this morning.  International stocks continued their mini-rally and we up 0.79% on the week.  Emerging Markets stocks were the big winner of the week up 1.59%.
  2. Data: The most important data point last week, in my opinion, was retail sales as they rose 0.6% in August and are now up 2.6% from one year ago. This number will continue to be closely followed as many look to it as a gauge of the health of the US consumer – with consumption being roughly 70% of the US economy, the largest in the world, it’s an important number to watch.  Housing starts declined 5.1% in August, but almost all of this can be attributed to the volatile multi-unit sector.  Single family home starts are now only down 1.3% from their pre-pandemic highs.
  3. Virus redux: After some very encouraging data the past few months in Europe, our friends across the pond now seem to be going through what the US went through in May/June – relaxing restrictions and perhaps some COVID fatigue as the number of new cases are climbing. The US seems to remain static in the number of cases, albeit at a very high relative level – ~40,000 new cases per day.  It now seems the only thing that will crush the pandemic once and for all, in developed nations at least, is as vaccine.
  4. US Election: The passing of Ruth Bader Ginsburg on Friday has thrown another wrinkle into an already confusing election season in the US.  Both sides have threatened legal action, it seems regardless of the actual result of the election, so the possibility of the election being decided by the Supreme Court is real.  The issue at hand is what happens if there is no immediate replacement and the court were to be split 4-4 on deciding the election.  We do not have a Constitutional remedy for that scenario.  This could easily tip in to a Constitutional crisis if it were to get that far and from a market perspective could cause some significant volatility.
  5. Fun Fact of the Week:  ALL THIS DURING A PANDEMIC – The median sales price of existing homes sold in the United States was $304,100 in July 2020, the first time in US history that the median sales price has exceeded $300,000.  The $304,100 median price is also a record on an inflation-adjusted basis, besting the $230,200 median sales price from July

Bottom line:  It now appears as if the market will be nearing a correction soon – tech (as defined by the NASDAQ) already is and the Russell 1000 is teetering on it this morning.  As a reminder, generally speaking a 10% or more pullback is considered a “correction”.  We view this as a healthy development – while no one likes to see their portfolio value decline, occasional corrections allow the market to cool off and hopefully prevent massive declines (25%+) in the future.  While it’s too early to say, this may be an opportunity for those who went too conservative coming out of the March pullback.

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