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Market Strategy 10/5/2020

  • John Stoltzfus
  • October 5, 2020

We Can Work it Out

Despite all the worrisome news last week, the underlying message from the equity market was positive.
Key Takeaways
  • A confluence of challenging developments and occurrences created headwinds for markets last week which impeded large cap stocks to some extent but boosted the performance of small- and mid-cap stocks.
  • Global market performance last week provided further evidence of a broadening appetite for equities by investors.
  • A glance under the hood of last week’s economic data suggested the economy is stronger than headlines would suggest.
  • In the week ahead investors will focus on developments tied to the president’s health, the stalemate in Congress, and economic data. 
rearview mirror of car

Last week at times it seemed like an “everything but the kitchen sink” kind of week with the first of the Presidential debate turning out to look more like a verbal brawl than a debate; a mix of better than expected and weaker than expected economic data released over the course of the week; no end to the stalemate on Capitol Hill hanging over the rescue package pending in Washington; an increase in Covid-19 hot spots in a number of New York City zip codes; all capped as the week drew to a close with the worrisome news that the US President, the First Lady and a number of other government officials had tested positive for Covid-19.

Notwithstanding all the aforementioned trouble as well as other news and occurrences that came to pass in a “mixed-bag” week of trouble, the major indices managed to move higher on the week if not higher on the day at last Friday’s market close.

For the week the Dow Jones Industrial Average, the S&P 500 (large caps), the S&P 400 (mid-caps) and the Russell 2000 (small caps) moved respectively higher by 1.87%, 1.52%, 4.71%, 4.37% and 1.48%. Not exactly the end of the world unless you were emotionally locked into the news on television.

If anything market performance stateside last week showed a healthy broadening of appetite for diversification among equities from both a sector as well as a market capitalization perspective.

It’s also worth noting that last month (September) value stocks outperformed growth stocks adding support to the thought that this new bull market emanating from the low on March 23rd just might “have legs” to continue climbing the proverbial “Wall of Worry” into next year.

Quotation from Aenean Pretium

Essentially things are not as bad as they might seem and the worst of the pandemic and the broadest of unprecedented economic shutdowns—if not quite behind us yet—might be closer to moving into the rearview mirror than we know.

In a week with plenty of troublesome headlines for all sides of the political spectrum the S&P 500 saw 10 of its 11 sectors move higher on the week.

There was evidence of some continued profit taking without FOMO (fear of missing out) by some investors last week on the back of volatility and downside action that had strafed equities over the course of last month. In addition, there likely was profit-taking on concerns that that the Democrats, if victorious in the upcoming election, would keep their promise to broadly raise income taxes and possibly substantially raise capital gains taxes on stock sales

We Can Work it Out

In our view the market in its historically recognized role as a discount mechanism was likely trying to tell investors last week—despite the worry and dread that exist on the stateside and global landscape from COVID19 and a host of other troubles—that chances are that “we can work it out.”

Perhaps the message is not as good as “everything is gonna be alright” or “someday we’ll be together” but essentially things are not as bad as they might seem with the worst of the pandemic and the broadest of unprecedented economic shutdowns maybe closer—if not quite behind us yet—to moving into the rearview mirror.

By Sunday the president while still not quite out of the woods on his bout with COVID-19 felt good enough (after “tweeting” a video message) to take a short ride in the Presidential SUV to wave at supporters who had gathered outside the Walter Reed Medical Center to wish him well.

Last week’s economic data may have disappointed in falling short of economists’ expectations for jobs added in September, but the unemployment rate moved lower, private sector jobs were stronger relative to a drop in government jobs, gauges of consumer sentiment moved sharply higher and a gauge of manufacturing activity remained deep in expansionary territory for the fourth month since hitting a crisis low.

In the week ahead investors will be focused on developments tied to the President’s health, the stalemate in congress over the pending rescue package, other election related news, the ISM nonmanufacturing index, the minutes of the last FOMC meeting and earnings results reported by a few S&P 500 companies that have begun to report early in the Q3 earnings season. The reporting season will get underway and gain greater attention when the big banks are scheduled to report next Tuesday.

John Stoltzfus of Oppenheimer Asset Managment Inc.

John Stoltzfus


Chief Investment Strategist, Oppenheimer Asset Management Inc.

John is one of the most popular faces around Oppenheimer: our clients have come to rely on his market recaps for timely analysis and a confident viewpoint on the road forward. He frequently lends his expertise to CNBC, Bloomberg, Fox Business, and other notable networks.

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