Increasing volatility continued to drive the stock market lower as Congress remains in a standoff over Stimulus talks. While many fear this may be just the beginning of a much larger market correction, others claim the drop is just another opportunity to “buy the dip”. We cover this and much more on the weakening economic recovery in this week’s blog.
Here are the top three things we’re covering this week’s blog:
The Market
The S&P was down -2.76% on the week and is now almost 7% off its all-time high earlier this month. While a correction of this nature has been expected for a long time, the magnitude and duration are yet to be determined. Something that did standout compared to previous pullbacks was the overall weakness in the top tech names that have served as the main contributors to the large returns seen recently.
Economic Data
New claims increased slightly last week and came in at 884,000. While this number is virtually identical to the prior week, initial Pandemic Unemployment Assistance Claims increased by 90,000 to 838,000. This brings the actual initial claims total to be over 1.7 million.
Continuing claims came in at 13.385 million, an increase of almost 100,000 over the previous week. The increase in this number was another concerning factor in the report.
Total Claims for Unemployment from all programs came in at just over 29.6 million. This was an increase of 380,000 from the week before and roughly 28 million higher than the same period last year. With all three measures of unemployment increasing this week, it is seeming less and less likely that we will end up with the V shaped recovery we were hoping for. It has now been 25 weeks since Initial Claims first spiked to above one million and we are still seeing Total Unemployment at an extremely inflated level.
Volatility
After months of steady gains, the market finally experienced the effects of increased volatility this week. Tech, which has consistently shown relative strength compared to the rest of the equity market was hit especially hard. While the sudden ramp up in volatility caught a lot of retail investors off guard, there were multiple contributing factors that we have been keeping a close eye on.
One of the main catalysts was the continued stock market strength while the economy struggled to recover from the losses it faced during the COVID shutdown. This divergence, coupled with September historically being the worst month for markets created a lot investor fear. Additionally, much of the initial market recovery in April and May was fueled by the Federal Reserve and the Government Stimulus Package[1]. With the current stalemate in Congress, many investors have begun to price in a much smaller package or potentially no additional stimulus whatsoever. Furthermore, the election continues to loom large as we move closer to November 3rd. No matter who wins on election day, we are likely to see very volatile price action in the coming months as different polls and news headlines are released.
Articles of Interest
Volatility – Why we should be paying attention to the S&P 500 volatility term structure, and understand what it means. Check out this article here.
SoftBank: The NASDAQ Whale – How one $100 billion Portfolio Manager leveraged controversial options strategies to propel major tech stocks to new highs. Check out this article here
- FOMC Meeting – Find a preview of what to expect in next week’s Federal Reserve meeting. Check out this article here.
Social Media Post of the Week
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Non-Financial Story of the Week
It was 19 years ago this week that I started my career as a financial advisor. I had completed my licenses over the summer of 2001 and started reaching out to potential clients over the weekend. I was getting ready for my commute on 9/11 when I turned on the news to see the first tower burning and was watching when the second tower got hit. It was a surreal moment as nobody on the TV knew what was happening at the time. I ended up driving into the office and along with the other trainees, we watched the TV from one of our training manager’s offices for a couple of hours and realized we would not be making any calls that day, or for a while to our potential clients. The markets were closed for the rest of the week and I wondered what all this would mean for my career. What I found out through all of this, is that one thing I am good at is helping client quiet the noise that is surrounding them and help them focus on what is most important to them. While we didn’t ignore what was going on in New York, we needed to pierce through the fear our clients were feeling and make sure they were going to be okay financially and that their family was okay. It was an experience I hope I never have to deal with again but I also believe that I am a better advisor to my clients today having gone through it so early in my career. There seems to be a lot of parallels from that today with the coronavirus and the need to handle the fear of the virus while still being able to make sure our clients and family will be okay financially.
Bottom Line
After months of gains, rising volatility and worsening employment data finally had a significant impact on the market. Next week all eyes will be on the FOMC meeting to determine if the Fed is still committed to doing whatever it takes to protect the markets from extensive downside. With less than two months until election day, we will continue to closely monitor volatility as a method for navigating choppy market movements like those seen throughout this week.
If you have any questions about any of the information in this week’s blog or what you should be doing right now with your personal and business planning, do not hesitate to reach out to us by sending an email to info@konvergentwealth.com or calling us at 253-236-7000.
[1] https://www.cnbc.com/2020/05/21/many-americans-used-part-of-their-coronavirus-stimulus-check-to-trade-stocks.html