Weekly Economic and Stock Market Commentary – September 21, 2020
As for the stock market specifically:
I didn’t remember last week was the quadruple witching week for the markets when I wrote the commentary. As you know, I am not big on “the reason” for things happening with markets, but we did see the volatility last week normally associated with the quarterly occurrence. The volatility was in the right direction early in the week, but mid-week the volatility turned to the negative direction, and moved 3 of my four market averages lower for the week. They didn’t move significantly lower, but lower nonetheless.
When I woke up this morning there was a report that a large number of major worldwide financial institutions are engaged in illegal chicanery. The alleged chicanery involves money laundering operations. I won’t name these companies since they did not have their day in court yet. However, I do know at least one of them has been accused of this before.
I have no idea if the market movement is related to the allegations, or simply the continual aggravation regarding “our friends in Washington,” which now includes those in office, and those running for office.
Supply in Control
More to what is happening with the markets is that both the S & P 500 and Nasdaq Composite each made 3 consecutive sell signals (it appears those signals will continue today). This tells us supply is in control of the situation.
Earlier this month, the S & P and Nasdaq Composite both made record highs. At that time our indicators were overbought. As of last Wednesday’s close, the market was in a neutral position, as of COB 9/21/20 was ~ 16% oversold. I may sound like a broken record (remember them?!), but think of “overbought” and “oversold” like a rubber band being stretched. Once stretched, it want’s to move back to the neutral position. So, 16% oversold is not a large number, but it is in the contra position from being the 40% overbought position it was back in August.
The bullish percent indicators saw slight to modest gains last week. That is a function of inertia, and some of the inertia has not yet been affected adversely by the selling late last week. I recommend WEALTH PRESERVATION in all areas for client investments.
Remember, Xs mean OFFENSE or wealth accumulation, while Os mean DEFENSE, or wealth preservation.
Below is where our indicators stand as of September 18, 2020 (Courtesy Dorsey, Wright, and Associates).
On a general note:
The Federal Reserve met last week to discuss interest rate policy. The group left short-term rates alone, and announced the availability of “free money” for at least another 2 years. As part of the policy, they stated that interest rates will remain unchanged until inflation continually exceeds a 2% annualized rate. They also want to see tightening in the labor market.
The Department of Commerce reported August retail sales figures. Sales rose a seasonally adjusted 0.6% during the month compared to July. August marked the third consecutive month where retail sales were higher than they were before the virus shutdowns took effect.
The Census Bureau announced that housing starts for August came in at 1.42 million units. This was down 5% from the July 2020 level, but up 3% from August 2019. Economists anticipated starts to be 1.52 million units.
The Federal Reserve provided a report on August Industrial Production. Manufacturers produced 0.4% more stuff in August, and was a tick below the anticipation of a 0.5% gain. Figures for June and July saw upward revisions. Manufacturing rose in August, but mining and fossil fuel extraction fell. Capacity utilization rose to 71.4%.
Finally, the Conference Board released its index of Leading Economic Indicators. This is supposed to forecast activity six months from its measurement. The August report showed a gain of 1.2% across its 10 measurement instruments.