HIGHLIGHTS

• The US was off by 0.86% and international markets by 3.09%.
• Covid numbers are increasing in Europe to the point of possible lockdowns.
• US numbers are also up but Florida remains flat.
• This will likely be a record year for IPOs.
• The economy continues to improve at a slower rate.
• Trump does not commit to a peaceful transfer of power.

MARKET RECAP

Stocks declined for the fourth consecutive week as the US market was off by 0.86% and international markets fell by 3.09%. Worries about rising coronavirus numbers and the subsequent economic impact, high valuations, as well as a volatile presidential race, have impacted prices. However, some of the tech stocks that were leading the decline rebounded this week, Amazon was up by 4.8% and Apple finished 5.1% higher. Fed Chair Powell has called on Congress to provide additional fiscal assistance to the economy. Estimated growth for Q4 will come down markedly if Washington cannot agree on a deal.

International stocks had a big fall, down by 3.09%, as Covid numbers continue to spike substantially higher in Europe and pressure increased to take aggressive steps to slow the spread. Numbers are also increasing in parts of the US. The Midwest appears to be getting the surge in cases that had previously hit other parts of the country. But even New York, which has been well under control since July, reported more than 1,000 new cases on Friday. Numbers in Florida have stayed flat recently at substantially lower levels from the peak, but will be getting a test soon as Florida Governor Ron Desantis has lifted all restrictions in the state.

Initial public offerings are setting up for the biggest year since 2000, having already raised $95 billion so far this year, almost matching the 2014 number and there are still three months to go.

The economy is improving, although not at the rate that many had hoped. However, there are some pockets of strength. Durable goods orders were up for the fourth consecutive month, increasing by 0.4%. New orders for nondefense capital goods excluding aircraft were up by 1.8%. Andrew Hunter, an economist at Capital Economics, said “business equipment investment staged a V-shaped recovery in the third quarter.”

Trump said he would not commit to a peaceful transfer of power. “Well, we’re going to have to see what happens,” Trump said. Basically threatening to usurp one of the most hallowed traditions of the United States. Another reason why he is unfit to be President. The betting odds still favor Biden.

SCOREBOARD

MARKET RECAP

Stocks fell for the third straight week as technology stocks continued their fall from grace. Amazon dropped 5.2%, Facebook 5.3%, Apple was down 4.6% and Google lost 4%. Since the September 2nd closing high, the overall US market as measured by the VTI is down 6.7% and the Nasdaq as measured by QQQ is down 11.9%.

The VTI (total US stock market) hit a new low on Monday, rallied slightly during the week, and then touched the low again on Friday before bouncing to close off the low. The Qs (Nasdaq 100) was not so fortunate, breaking down to a new low on Friday, in what might indicate further downside.

Despite the recent fall, there are still signs of excess in the market. Snowflake (SNOW) went public in what was the biggest initial public offering of a software company ever. Priced at $120, the stock soared to $245 in the initial trade, giving the company a market value of $68 billion or 110 times revenue.

The Fed said during the week that the economic outlook is highly uncertain and said they would keep interest rates at close to zero for three more years and would continue to buy $120 billion of agency mortgage-backed securities and treasuries each month. The Fed also updated their guidance and said the Fed would need to see evidence of a tight labor market and that inflation will “moderately exceed 2% for some time” before considering raising rates. Paul Volker must be rolling over in his grave.

US retail sales increased for the fourth straight month but the pace was slower than earlier in the summer. August sales were up by 0.6% over July and were above pre-pandemic levels. The retail sector has recovered well, unlike other parts of the US economy, which still trail pre-pandemic numbers. Meanwhile, in China, retail sales have rebounded to pre-pandemic levels. Q2 growth was up 3.2% compared to a 6.8% decline in Q1. China has had the pandemic more or less under control since its initial outbreak.

Mortgage data firm Black Knight Inc. says about one million homeowners are behind on their mortgages and could be in danger of losing their homes when restrictions on evictions and foreclosures expire.

Initial claims for unemployment fell by 33,000 to 860,000 last week.

SCOREBOARD

MARKET RECAP

For the week, US stocks fell by 2.5% while the Nasdaq composite was off by 4.1%. The VTI (the total US stock market) has sustained some technical damage, and is barely above its 50-day moving average, after recovering from earlier in the day on Friday when it fell below. A break below the 50-day straight from here, or a failed rally to new highs followed by a break below the 50-day, could signal a bigger drop ahead.

Tech stocks have been up and down all week in volatile trading. The Nasdaq 100 had a 3% span from high to low on Friday and is down 11% since September 2. That decline was after a 58% run from late March. Apple is down 16% from its high but is still up almost 100% since its March 23 low. Tesla dropped by 21% after it was not selected to join the S&P 500. The overall US market is down 6.8% from September 2 closing price.

The easy gains in economic output coming off Q2 are beginning to slow down. The Federal Reserve Bank of Atlanta estimates the US will expand by 7% in Q3, up from a 9.1% contraction in Q2. But they are only looking for a Q4 expansion of 1.25%. Unemployment claims came in at 884,000 last week. The pace of the decline is beginning to flatten out at a level that still exceeds the prepandemic record or 695,000. The number of job postings is at levels 20% below last year according to Indeed.com. Washington’s inability to agree on a new stimulus package and restrictions that still remain on many businesses such as restaurants and bars in parts of the country are also holding back the economy.

SCOREBOARD

MARKET RECAP

US stocks fell by 2.38% and international stocks were down by 1.70%. The decline ended five consecutive weeks of gains. The S&P 500 is up 35% since April, it best run since 1938. The big hit was on Thursday and Friday when the market fell by 4.3% or $1.7 trillion in market cap. From the Wednesday high to the Friday low, the decline was 6.9%. However, the decline was just a small dent in the market rally, but a big fall like that can sometimes be a signal that more is on the way.

Unemployment fell to 8.4% in August from 10.2% in July as employers added 1.4 million jobs in August. It was a very strong employment report but doesn’t factor in recently announced layoffs that are on the way (see our commentary last week).

US debt has now reached the highest level since WWII. Federal debt held by the public will exceed 100% of US gross domestic product, putting the US in the same position as only a few countries around the world, including some economic “powers” like Italy and Greece. The last time US debt exceeded the GDP was in 1946 after years of financing WWII. The borrowing though has not slowed down investors, who still are happy to purchase treasuries that yield almost nothing. With ultralow interest rates, the government can get away with this, for now. Under the assumption that the US does not deal with the debt issue, it won’t be a problem until it becomes a problem, that being when the market pushes interest rates higher, or the government is forced to suppress interest rates even more than they are now leading to all kinds of unintended consequences. That may be a year from now or fifty years from now.

SCOREBOARD

A good column by Jack Hough at Barron’s on the math behind social security benefits.

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