BLACKMOUNT MARKET REPORT

U.S. major indexes finished higher on hopes that Congress will reach a deal on another coronavirus-relief bill.

U.S. major indexes finished higher for the week, on hopes that Congress will reach a deal on another coronavirus-relief bill. Equities finished a choppy September down 4%, as the six-month rally from the March low took a breather. Most sectors within the S&P 500 Index posted solid positive returns, with the exception of energy stocks, amid a sell off in oil prices. The energy sector remains the worst performer for the year-to-date, down over 50%. 

The strength of the stock rally over the last six months is partially attributed to the aggressive fiscal stimulus in the U.S. and other developed economies. To date the federal government has added almost $4 trillion in new spending to support the economy emerge from the worse economic recession since the Great Depression. 

The roller coaster ride in equity markets over the past months has been led in large part by a handful of technology stocks. While this dynamic has led U.S. markets to all-time highs and valuations to extreme levels, the fundamental challenges are not the same today as they used to be prior to the tech bubble. Even with the pandemic, technology earnings rose 0.5% y/y in 2Q20, while overall S&P 500 earnings shrank by nearly 27% on a pro-forma basis. In contrast, in 2000 the sector contributed almost 16% to earnings, yet earnings contracted severely through H1 of 2001 before turning negative by Q3. 

European stocks advanced for the week, with investors scooping up beaten-down stocks, and overcoming the resurgence in the number of coronavirus cases. The pan- European STOXX Europe 600 Index ended 2.02% higher, with major indexes also posting gains. Germany’s DAX Index gained 1.76%, France’s CAC-40 Index jumped 2.01%, and Italy’s FTSE MIB Index rose 1.96%. The UK’s FTSE 100 Index also posted solid gains of 1.78%. Financials led the way, reversing a sell-off last week that pushed the banking index to its lowest level since at least the late 1990s. 

In China, stocks rose marginally in a holiday-shortened week, supported by several economic readings showing that the recovery was on track, but they ended September with their biggest monthly loss since May 2019. China’s consumer stocks outperformed ahead of Golden Week holiday, as investors expect strong consumption during the break, supported by a number of measures deployed by Beijing to lift domestic consumption. 

In Japan, stocks posted solid losses for the week. The Nikkei 225 Stock Average slid 0.75%, while the large-cap TOPIX Index and the TOPIX Small Index, broader measures of Japanese stock market performance, also posted solid losses. The Tokyo Stock Exchange halted stock trading on all of Japan’s exchanges for the full day on Thursday, October 1. A technical glitch, resulting from a system failure to switch to backup mode, caused a transmission outage. 

Read the entire market report prepared weekly by Blackmount advisors. 

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