Today is October 1 and it is 6am.
First let’s talk about the trends. Short term we have undergone a correction for the month of September. From a seasonal standpoint, this is not unexpected as September and October tend to be two of the weakest months of the year. However, from a trend standpoint, all major averages reside above their intermediate and long-term trend lines but below their short-term trend line. Clearly the market had gotten ahead of itself and was due for a correction given its rapid uninterrupted recovery from the Covid generated lows.
Let’s look at a chart. The S&P 500 futures has retraced 23.6% of the market move off the Covid lows. This is consistent with a normal Fibonacci retracement level. The retracement has been normal and orderly.
Additionally, we are in the early innings of a recovery process from a self-inflicted recession. Unemployment levels are improving rapidly and are only constrained by the speed at which states permit reopening. Projected GDP growth for the fourth quarter are deep into double digits. And by some accounts over $4 Trillion remains on the sidelines. How long will these dead assets remain at virtually 0%? My point is that this is a lot of fuel to potentially drive the economy and the market higher in the coming months.
Next, there is not much I want to say about the Presidential Debate other than what a mess. All participants including the moderator displayed a complete lack of control which led to probably the poorest display of presidential debating skills I have witnessed in my lifetime. They have established a very low bar from which to try to improve on in the next debate. One could argue that given the size of the market rally yesterday, the market viewed this ugly display positively. This can only mean to me that the market views this type of gridlock as good for the market. With gridlock, the pendulum cannot swing too far in either direction.
So as we approach the election, if anyone has concerns about an outcome that would produce negative market consequences, please give me a call and we can discuss dialing back your risk score. So short term, we can certainly make some adjustments if needed. Long term I am very optimistic about the continued economic and market recovery. I continue to believe we are still in the early innings of a recovery from a 40% peak to trough market event which typically comes around only once every decade.
As always, thanks for your support and despite all the noise and confusion, we are very gratified about our overall results YTD.