Pre-September Trading Returns

By Nicholas Jasinski |  Monday, September 21

Selloff. There was no place to hide in markets today, as risk assets across classes dropped. After three weeks of technology stocks lagging while investors rotated into cyclical beneficiaries—industrials, materials, and the like—today's trading took a very pre-September dynamic. Oil and gold prices fell, while the Vix volatility index, Treasury yields, and the U.S. Dollar all rose.

Covid-19 cases have been rising anew in Europe, Australia, and some other parts of the globe, prompting localized economic shutdowns over the weekend and threats of more restrictive measures. Meanwhile, the passing of Supreme Court justice Ruth Bader Ginsburg sets up another bitter partisan battle in the weeks leading up to the November election. That makes a hoped-for compromise on a fiscal stimulus and coronavirus relief package from Washington increasing unlikely.

So, faced with a higher likelihood of a potentially major hiccup in economic recovery progress, investors responded by doing what they did for most of 2020: buying pandemic-resistant technology names while selling anything exposed to the cyclical rebound.

That meant gains for the likes of Netflix, Electronic Arts, and Domino's Pizza—all companies that saw their business rise while people were stuck at home on their couches earlier this year. That tech-led boost lifted indexes well off of their midday lows by today's close. Meanwhile, airlines, cruise operators, and shopping mall REITs were among the biggest losers today: Delta Air Lines stock dropped 9.2%, Norwegian Cruise Line Holdings fell 7.8%, and Simon Property Group lost 7.1%.

The S&P 500 closed down 1.2% after being down more than 2.7% at its lows of the session. The Dow Jones Industrial Average fell 1.8%, while the Nasdaq Composite cut its earlier losses to just 0.1% by the close. The S&P and Nasdaq have each dropped for four-straight days, their longest losing streaks since February.

Today's developments aside, the long-term picture remains supportive of a rising market and economic recovery under way. But that doesn't mean the coming weeks and months won't be bumpy.

Here's Keith Lerner, chief market strategist at SunTrust Advisory Services, today:

Our work suggests we are still undergoing a short-term corrective period within the context of a bull market. We had been expecting a more challenging near-term environment and for markets to remain choppy as we get closer to the election. However, we do not want to lose sight of the bigger picture. Recall, despite 19 pullbacks of greater than 5%, stocks rose more than 400% during the previous bull market. We view pullbacks as the admission price to being in the market and the potential for participating in longer-term gains.

Lerner points to monetary policy stimulus, improving earnings, and the lack of an attractive alternative to remaining invested in the stock market for most investors. He sees stocks likely being higher in a year than they are now—and certainly offering better potential returns than cash or bonds.