Volatility has returned to U.S. stock markets. September’s trend of larger market swings persisted during the holiday-shortened week, as major U.S. indices finished down. Questions surrounding the progress of a coronavirus vaccine and concerns over Brexit loomed large this week – adding to the concerns that stocks are too highly valued, given the lingering economic effects of the pandemic.
For the week, the S&P 500 Index fell 2.5%, while the Dow Jones Industrial Average lost 1.7%. Year to date, the S&P is up 3.4% while the Dow is down 3.1%. Stock prices have staged a remarkable recovery from springtime: at their recent highs in early September (9/2 for S&P 500 and NASDAQ, 9/3 for DJIA), U.S. indices were up significantly since March 23rd:
DJ Industrial Average +60.3%
S&P 500 +63.7%
This amazing growth rate is unsustainable, regardless whatever the news of the day is. We were bound to return to a (completely normal) higher level of fluctuation. We’ve detailed in recent updates our rationale for longer-term optimism on stocks, and nothing has happened to change our expectations. If anything, markets assessing new information instead of blindly chasing momentum is a positive development – an indication that “irrational exuberance” is not taking over. The building blocks of successful investing don’t change with market movements: asset allocation, diversification, and coordination with a financial plan that considers your goals and objectives.
Unemployment data released this week was less promising than in past weeks. Weekly first-time unemployment claims were 884,000, steady from last week but in line with expectations. Continuing claims came in higher than expected at 13.4 million, an increase from last week. While we would not read too much into any single week’s numbers, if continuing claims persistently climb higher it could be a sign that the recovery is losing steam.
The entire world is keeping close tabs on the various entities currently testing vaccines, as private enterprises, governments, and public-private partnerships all chase success. Early this week, AstraZeneca announced a pause in their Phase 3 trial due to a single participant developing complications. Markets reacted negatively to the setback, although it is not uncommon for drug trials to be paused. (It is still unknown if the illness is due to the vaccine itself, or from some unrelated issue specific to the study participant.)
The ongoing struggle between the U.K. and the European Union (EU) to agree to final terms on Brexit continues. The December 31 deadline is quickly approaching; if no deal is struck by year-end, tariffs and more restrictive customs documentation requirements would go into effect. This would likely have a significant negative effect on trade, just as the U.K. and other European economies are recovering. The U.K. seems to be taking a hardline stance with the EU. It’s unclear if this is merely a last-minute negotiating tactic or portends a bitter divorce to start 2021.
As we continue to navigate through the pandemic, our commitment remains to be here for you each step of the way. As always, please contact us with any questions about the economy and your financial plan.
Nathan Mersereau will continue posting short videos to provide timely insights and advice. We will post links to Nathan’s video updates across all of our social media channels.