U.S. stocks fumbled for the second week in a row, led down by large-cap growth stocks. These stocks have been leading the recovery from the pandemic lows. The declines of the past two weeks are probably a healthy check on a segment of the market that may have moved too far ahead of the line of scrimmage.
The start of the football season Thursday, with a 76,000 seat stadium filled with 16,000 fans, was a reminder that we still have a long way to go to reach normality. Markets continue to be driven by the ebbs and flows of the pandemic and the government’s response to it. Monetary stimulus from the Federal Reserve has helped fuel the outperformance of large-cap growth stocks. In contrast, the inability of Congress to agree on the terms of the next stimulus bill has held back value and small-cap securities. Looking forward, we can see a legitimate scenario where the combination of fiscal stimulus, a stimulus agreement in Congress, and a year-end vaccine could lead to significant economic and stock market growth. Also plausible is that the benefits of a vaccine and fiscal stimulus are too late to avoid lasting economic damage.
With uncertainty high, what is an investor to do? The truth is uncertainty is always high for investors. Investing should never be about knowing the future because the future is unknowable. A better plan is preparing for the unknowable with a well-diversified portfolio that has a level of risk consistent with your willingness, ability, and need to take on risk. Armed with this game plan, you will be prepared to ride out whatever surprises are thrown your way.
Headlines This Week
- The National Football League season kicked off this week with the Kansas City Chiefs beating the Houston Texans.
- Before kick-off, the two teams held hands to show unity against social injustice.
Failed to Convert
- The stimulus is in a stalemate. The House blocked the Senate’s “skinny” stimulus proposal, and currently, there are no signs of either side cracking.
- With the height of the campaign season approaching, it’s becoming increasingly more likely that a deal may not happen until after the election.
- The European Central Bank (ECB) and U.S. Fed have been unsuccessfully trying to generate inflation for years. Both Central Banks recently made comments that they will continue with easy monetary policy and will allow inflation to run above their 2% inflation target if inflation does reemerge.
- Initial claims and continuing jobless claims rose in September, signaling some friction in the recovery of the labor market.
- The good news is that many people are returning to work, and the labor market is in much better condition than it was in spring.
The Week Ahead
Back on the Gridiron
- While the National Football League’s (NFL) official Kickoff was on Thursday, this week will be the start of Sunday, Sunday Night, and Monday Night Football.
- The return of Football will be a massive boost to the media sector. Michael Nathanson of MoffettNathanson emphasized that “the NFL is the biggest driver of network ratings and ultimately where the ad dollars flow.”
The Offensive Line
It is a big week for central bankers as the Federal Reserve, Bank of England, and Bank of Japan all have rate decisions. While we do not expect rates to change, investors will be looking for an update on the course of economic recovery and a hint at future moves.
- Comments from Chairman Powell on the need for Congress to pass a stimulus bill may help push politicians to act.
- Japan’s focus will be more on the transition of power than monetary policy, as the Prime Minister is resigning.
- The Bank of England has been on the watch for going negative with its rates, but they may need to hold that in their back pocket for later.
In the investment world, the Most Valuable Player is Apple Corp. (AAPL) due to its $2 Trillion Market Capitalization. The MVP is hosting its product event next week.
- Experts are predicting an upgrade to the iPad and iWatch and an unveiling of a new iPhone (12).
The University of Michigan Consumer Sentiment Index, Retail Sales, and Industrial Production join Thursday’s Weekly Jobs report as sleeper picks to move the market next week.
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