Monthly Market Commentary Through September 2020

BY MICHAEL SICURANZA

It has been a few weeks since we did our Market Outlook Webinar.  The feedback has been positive and comments for improvement have been constructive.  Thank you to all who watched and have followed up with us.

The weight of the evidence at the time was as follows:

  • Economy continues to improve though unevenly – primarily due to massive fiscal and monetary support.

  • Market is going through a correction, but the key evidence suggests higher prices for stocks.

  • Election data favors Biden but what matters for the market is the primary trend prior to the election.  That primary trend is positive.

In this blog, I am going to focus on the second bullet and see where equity markets are relative to two weeks ago.  The next four charts are some of the most important we look at each and every week.

Here is the daily chart of the QQQ (ETF representing the Nasdaq) – Not much has changed, as it continues to stay above the 50-day moving average.  This tells us that this is still a bullish configuration.  The S&P500 chart (not shown) has a similar configuration and set up.

B1.png

Let us now compare QQQ vs TLT (long term treasuries).  At the webinar – we stated that if the ratio was above 1.59 then it favored the Nasdaq (and stocks) over Bonds.  Here is the chart as of Friday’s close – Still looks good for equities relative to bonds.

Here is the ratio between Consumer Discretionary (things I want) vs Consumer Staples (things I need).  This ratio has gotten stronger for Consumer Discretionary over the last few weeks, suggesting that the economy is improving and more importantly that he demand for risk assets is strong.

B3.png

When we last looked at the Semiconductor index (represented by the ETF SOXX) it was just hanging onto the 50-day moving average.  Where are we now?  Like the Nasdaq and S&P500, it has bounced off the moving average and is currently moving higher.  Remember, Semis are the transports of the information superhighway.  They are a key indicator for both economic growth and risk appetite in the market.

B4.png

Conclusion:

The weight of the evidence still points to higher equity prices.  This is not the be all end all list of things that we analyze in determining investment decision.  BUT, it does give you a glimpse into some of the key themes we continue to track and monitor.  As always, we will continue to look at the weight of the evidence and make decisions in your portfolios based upon our investment process. 

Kyra Smith