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26 September, 2020 Market Commentary

Nearly All Asset Classes Suffered Meaningful Losses


Market Commentary for the week ending September 26th, 2020

Summary

  • Everything was down with significant losses in nearly all asset classes.
  • Housing remains hot with existing sales reaching a 14-year high.
  • The Federal Reserve calls for Congress to provide more economic stimulus.

 

How Big is Apple?

Apple’s size is massive based on an array of measures. Its market value, or the total value if you were to purchase every share of stock, is now $1.92 trillion even after being off its recent high by more than 16%. A relevant perspective this week on Apple’s size and an interesting illustration of its impact on the performance of the S&P 500 index is a comparison to the entire energy sector.

Apple vs. Energy sector

The week the energy sector was the worst performing falling a whopping -8.7%. The stocks making up the S&P 500 energy sector include all of the biggest names such as Exxon Mobil, Chevron, and 24 more companies with a TOTAL market value of just $589 billion. In other words, Apple has a market value that is 3.26 TIMES that of all the energy stocks combined. Click here to see list of energy stocks.

The impact of Apple’s stock performance on the S&P 500 is explained by its massive market value as the S&P 500 index is a cap-weighted index (the bigger the market value or capitalization, the bigger the stock’s impact on the performance of the overall index). Furthermore, the relatively inconsequential impact of the energy sector’s performance is also explained by the same.

As noted above, the entire energy sector fell -8.7% for the week but the S&P 500 index was down just -0.6%. The reason for this is much explained by the fact that Apple’s stock went up +5.1% for the week. Because Apple’s value is 3.26 times that of the entire energy sector, the positive performance of one stock, Apple, more than outweighed the very negative performance of the 26 stocks in the energy sector. Another way to look at it is that the entire energy sector falling -8.7% is equivalent to Apple’s stock declining -2.6%.

Apple is a huge company and its stocks, therefore, is single-handedly having a huge impact on the performance of the S&P 500 index making the performance of some entire sectors relatively meaningless.

This Week’s Performance Highlights

Market Indexes week ending September 25, 2020

Source: www.YCharts.com

There was a broad selloff in markets around the world with investors seemingly concerned about the same things…1.) the U.S. government failing to provide additional stimulus and support, 2.) COVID cases jumping in Europe and elsewhere, and 3.) uncertainty around the upcoming election. Bucking the week’s selloff and resuming their upward trend were several of the big-tech stocks as illustrated in the below table.

Big tech stocks

Source: www.YCharts.com

  • Large U.S. stocks held up better than all others, both domestically and internationally, with the S&P 500 off just -0.6%. This relatively small loss does not tell the whole story though as the index was held up by the largest tech stocks as highlighted above while the average stocks in the S&P 500 fell -2.7%.
  • Some volatility returned to the market with the Dow Jones Industrials falling more than 900 points intraday Monday before recovering to close down just -510 points. For the week, the average daily range from high-to-low for the Dow was more than 600 points!
  • Small U.S. stocks suffered far bigger losses than large off -4.1% for the week. Year-to-date small stocks are down -10.7% compared to a gain for large stocks, as measured by the S&P 500, of +3.6%.
  • Both growth and value stocks are lower for the month, as illustrated in the accompanying graph, but unlike many other months when the overall market has been lower, this time value has held up better than growth. That said, the gap between the two was nearing 7% a week ago and at the close this week had narrowed to just over 2%.

    Growth vs Value Stocks Month to Date Performance

    Source: www.YCharts.com

  • Federal Reserve Chairman Powell testified on Capital Hill this week urging both Congress and the White House to provide more economic stimulus to help smooth and accelerate the economic recovery. The Federal Reserve previously committed to keeping interest rates near zero for what will likely be years but said more is needed to help with the economic collapse resulting from the pandemic and shutdown.
  • International stocks faced selling pressure as well with developed country markets down -3.2%. Eurozone stocks faired the worst off -5.1% due to big losses in Germany, France, Spain, and others. This poor performance compares to much smaller losses in Japan, -0.8%, and Australia’s decline of -1.2%.
  • Emerging markets were caught up in the week’s selling too down -3.6%. China’s market was among the worst off -5.0% for the week leaving it down -5.9% for 2020.
  • The less traditional asset classes did little or nothing to help more diversified portfolios this week with losses across the board. Real estate stocks were down -3.1% for the week and remain among the worst performers for the year down -22.8%. Commodities and gold were both also lower by -2.6% and -4.5% respectively.
  • Bonds provided some protection in diversified portfolios this week down just -0.1%. Mid-term U.S. Treasuries (IEF) were actually higher by +0.3% while corporate bonds moved lower.

Economic Indicators

Durable goods orders, excluding aircraft, have reached pre-pandemic highs as shown in the accompanying graph climbing +1.8% in August. This number was ahead of estimates but, when including aircraft, orders were up just +0.4% which was well behind forecasts. In addition to weakness in aircraft orders, autos and auto parts reported a decline of -4.0% after a huge gain in the prior month. Overall, these are suggesting the manufacturing sector has recovered well from the pandemic shutdown.

Core Capital Goods EX-Aircraft

Source:www.fed.stlouisfed.org

Existing home sales rose +2.4% compared to the month before but fell just short of economists’ estimates. Sales are running at the fastest pace since December 2006, leading up to the housing crisis, at an annual rate of 6.0 million homes. Every region of the country experienced gains with the West and South lagging other regions likely due to wildfires in the West and hurricanes in the South. The strong pace of sales has left inventories at just 3.1 months or roughly half of what is generally considered a balanced market. Year-over-year sales are higher by +10.5%.

Along with a rising pace of sales, prices are also higher with the median reaching $310,600 representing a gain of +11.4% compared to the same period a year ago.

Jobless Claims are staying persistently high with new claims this week coming in at 870,000 compared to 866,000 the week before. We will get a fuller picture of the employment market this week with the release of the September numbers.

Upcoming Economic Reports

  • Employment Report
  • Jobless Claims
  • Consumer Confidence Index
  • Case-Shiller Home Price Index
  • ISM Manufacturing Index

Contact Mark A. Patton :