Has the Recovery Ended? - Holdun

Market Summary

Relatively muted movements by recent standards with the S&P 500 down -0.6% this week. The big technology stocks that had led the broader market for most of this year extended their more recent run of underperformance. Small caps managed to close the performance gap, outperforming large caps over the week with the Russell 2000 up nearly 3%. The Tech sector continued to lag this week despite the efforts of the new kid on the block ‘snowflake’. The data warehousing company went public this week in an IPO that produced previously inconceivable first-day results. Surging 111% on its opening day, now trading 175x price to sales ratio, making it the largest software IPO ever by that metric.

Equities

0.6%S&P 500

The recent sell-off from some of the larger tech names continues to drive the negative performance in recent weeks, but for investors, this represents more of a rotation than an exodus from the market following five months of rip-roaring returns.

Currency

-0.2%USD/EUR

The dollar resumed its downward trend amid concern over the U.S. economic outlook and the risk that a weakening stock market may feed through into lower global demand for U.S. financial assets.

Bond Yields

0.70%US 10Y TREASURY YIELD

Yields rose marginally over the week but still remain range-bound at historic lows as the FED re-iterated their lower for longer stance at the September FOMC meeting this week.

Commodities

9.8%CRUDE OIL

Crude oil prices recovered following two weeks of decline, climbing back above $40 a barrel as supply contractions help demand.

best2.9%Energy

Worst-2.3%Consumer Disc.

Market Outlook

The final quarter of 2020 is quickly approaching, and volatility is likely to remain elevated. The labour market recovery appears to be slowing, but not reversing with Jobless claims in the September employment survey declining on both a seasonally and unadjusted basis. Still, jobs data remain well shy of the pre-pandemic peak, and well-targeted fiscal aid is needed to sustain momentum in spending through year-end and into 2021. Retail sales growth slowed in August to 0.6%, coinciding with the expiration of the $600 extra weekly unemployment payments. This slower pace of recovery is likely to persist without durable fiscal support. Some progress was made towards a short-term fiscal spending plan this week, but the longer-term economic relief package is still broadly unclear.