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Weekly Economic and Stock Market Commentary – August 31, 2020


Weekly Economic and Stock Market Commentary – August 31, 2020

Note: The US financial markets, and my office, will be closed next Monday, September 7th, for the Labor Day holiday.

Also, be sure to watch my new video – “There are 3 harsh truths about wealth management” posted on the homepage of this website and on my LinkedIn page. Feel free to share “the truth” with your family, friends and associates 😉

As for the stock market specifically: It is time to turn the calendar to the only monthof the year where the S & P 500 has the highest probability of a negative return. While many of the memorable market miseries we mostly recall came in October, September statistically has a negative return for stocks. I guess it is time to hold on again.

The good news is that the offense is on the field as we close August. And that is a good way to start the chaotic time of the year.

This year – so far – shows a tremendous disparity between growth stocks and value stocks. I can see this with stocks of all sizes, and in international markets. This goes against what normally occurs from May through November. We may have two months to go, but it seems unlikely (NOT A PREDICTION) that value stocks will outperform growth stocks from May to October this year.

Here are the definitions courtesy of Investopedia.com:

A growth stock is any share in a company that is anticipated to grow at a rate significantly above the average growth for the market. These stocks generally do not pay dividends. This is because the issuers of growth stocks are usually companies that want to reinvest any earnings they accrue in order to accelerate growth in the short term. When investors invest in growth stocks, they anticipate that they will earn money through capital gains when they eventually sell their shares in the future.

A value stock is a security trading at a lower price than what the company’s performance may otherwise indicate. Investors in value stocks attempt to capitalize on inefficiencies in the market, since the price of the underlying equity may not match the company’s performance.

Common characteristics of value stocks include high dividend yield, low price-to-book ratio (P/B ratio) and/or a low price-to-earnings ratio – P/E ratio. Investors can find value stocks using the “Dogs of the Dow” investing strategy by purchasing the 10 highest dividend-yielding stocks on the Dow Jones at the beginning of each year and adjusting the portfolio every year thereafter.

The bullish percent indicators didn’t move much for the week, despite the headlines numbers being strong. I have no reason to change the recommendation of WEALTH ACCUMULATION strategies for investments.

Remember, Xs mean OFFENSE or wealth accumulation, while Os mean DEFENSE, or wealth preservation.

Below is where our indicators stand as of August 28, 2020 (Courtesy Dorsey, Wright, and Associates).

On a general note:

The Department of Commerce reported July Consumer spending rose by 1.9% when compared to June. The consensus estimate of economists was for a gain of 1.6%. This was a slower growth rate compared to May and June. The report stated the savings rate continued strong at 17.8%. That was down compared to May and June, but more than double the January savings rate of 7.6%.

The Commerce Department also announced that July durable goods orders rose by 11.2%. This was more than 2.5 times the consensus estimate of 4.8% predicted by economists. That marked the 3rd straight month with substantial gains. Automobiles and aircraft led the gains. Core orders rose to levels last seen in February.

If you want more information email me at philip.rongo@ibexwealth.com.