September 2020 Market Insights
By: Allen Z. Thuma, CFA - Portfolio Manager & Research Analyst
August continued the recovery from the March 23rd bottom, with a total return of 7% for the S&P 500 Index through the end of the month. The index reached new all-time highs on September 2nd but has recently given back some gains. Total year-to-date return for the index through September 10th is now 4.7%. As stocks have advanced while earnings have fallen, the forward 12-month price-to-earnings (P/E) ratio for the S&P 500 is now roughly 22x. By comparison, the 5-year and 10-year averages are just over 17x and 15x, respectively, indicating the market is more “expensive” than in recent years. Overall, growth type equities continue to outperform value as evidenced by the S&P 500 Growth ETF (IVW) being up 19.0% versus the S&P 500 Value ETF (IVE) having declined 11.6% year-to-date.
Looking at sector performance, the technology sector continues to outperform other sectors (driven by large-cap growth stocks), pushing its weight in the S&P 500 Index to almost 28%. Despite the Nasdaq 100 having its quickest 10% correction of all time in early September, that tech heavy index is still up 28.6% year-to-date. Investors have placed a premium on the tech sector’s above average growth expectations and subscription-based business models that have shown more resilience to Covid-19. It has been a “risk-on” environment since the March bottom in the quickest stock market recovery of all time.
What is moving the market and what should investors expect going forward? Recent unemployment data have been encouraging. The country added 1.4 million jobs in August and the unemployment rate dropped to 8.4%, which was lower than the 9.8% consensus expectation. Consumer spending recently showed 1.9% growth with inflation (Core CPI) up 1.6% in July. The Fed remains accommodative and announced a change in policy to average inflation targeting. This means the Fed plans to keep interest rates low and allow inflation to run above their 2% target. It appears reasonable to expect an infrastructure bill over the next several years. Expectations for wide availability of a coronavirus vaccine appear more likely for mid-to-late-2021. Analysts are projecting earnings and revenue growth over 26% and 8% in 2021, respectively. While the upcoming election presents increased potential for near-term volatility, markets have performed well in the past when government power is divided across parties. For more analysis on the election, please read our July 2020 Market Insights or sign up for our October 28th 11:00 a.m. webinar.
We encourage clients to remain focused on longer term objectives, such as retirement. This requires maintaining investments and exposure to markets despite short term volatility. Focusing on long-term goals helps avoid impulsive decisions which can hinder a portfolio’s performance potential. Your Buckingham team continues to utilize a holistic and diversified portfolio approach, seeking attractive long-term investment opportunities while mitigating risks where possible.
Allen Z. Thuma, CFA
Portfolio Manager & Research Analyst
RISKS AND IMPORTANT CONSIDERATIONS
Views and opinions expressed here are for informational and educational purposes only and may change at any time based on market or other conditions or may not come to pass. This material is not a solicitation to buy or sell securities and should not be considered specific legal, investment, or tax advice. The information provided does not consider the objectives, financial situation, or needs of any specific individual. All investments carry a degree of risk and there is no certainty that an investment will provide positive performance over any stated period. Equity investments are subject to company specific and market risks. Equities may decline in response to adverse company news, industry developments, or economic data. Fixed income securities are subject to market, credit, and interest rate risks. As interest rates rise, bond prices may fall. Past performance is no guarantee of future results.