Stock Market Volatility in September

As we know September happens to be the worst month for stock market. Despite Federal Reserve’s unlimited quantitative easing, this year is no exception. The year as weird as 2020 is going to stick to the same notion of the past. The market has been volatile this month and possibly continue to be volatile for the remainder of the year. Volatility does not necessarily mean market will only go down, rather it may keep fluctuating up and down. So, we should strategize accordingly. Both DOW and S&P 500 were down almost 10% from their all-time high and NASDAQ was down as much as 13% from its all-time high. Having said that, market rally last Friday brought all indexes to less than 10%. In other words, we are in  “pulled back” territory rather than “correction” territory. Why this  volatility? Well, I will attribute mostly to the following factors:

• The continued growth of COVID-19 cases which has gone past 7 million in U.S and death rate has gone past 200 thousands. 
• Though jobs report on Thursday was a good reminder that the economy is still not back to normal with 870,000 workers filed for first-time unemployment benefits comparing to last week bringing back fear that economy may be stalling out. The unemployment rate is still pretty high at 8.4%. But investors also took heart of the news that House Democrats and the White House have restarted stalled negotiations over another economy rescue package. There appears to be a new sense of urgency in Washington over a new stimulus, as restaurants, bars, and hotels around the country are starting to close for good and an airline industry that is staring down the barrel of widespread layoffs when its payroll-support program expires on Oct. 1.
• The U.S dollar has strengthened during September, hence commodities (Metal, Oil etc.) have been hit hard. Also, strong dollar is not good for multi-nationals as their revenue/earning takes a hit.
• More importantly, now everyone is anticipating the first presidential debate next Tuesday, 9/29. This I believe is a major factor now and for next couple of months, particularly when Donald Trump keep touting that he may not do a smooth transition of power. Is this the democracy!! 

What happened? The current selling was ignited by a massive rotation out of technology stocks. We saw most of the big technology stocks were hit hard with 10-20% correction. Moreover, if history is any evidence, when S&P 500 tends to climb higher in the six and 12 months following a six-month rally of 40% or more, subsequently it posted an average gain of 10.6% six months later and an average 11.1% gain 12 months later. Please note that S&P 500 was up more than 50% since March 16^th Low.  Last Friday, only a quarter of S&P 500 stocks were above their 50-day average, almost at the border of a common “oversold” zone. More than one third of the stocks in the index are at least 20% off from their high. Having said that, last Friday investors felt little relaxed of the fact that House Democrats and the White House have restarted stalled negotiations over another rescue package. Hopefully, market downturn coupled with election is approaching nearer, politicians appears to be realizing a new sense of urgency in Washington over a new stimulus, as restaurants, bars, and hotels around the country are starting to close again and airline industry that is staring down the barrel of widespread layoffs when its payroll-support program expires on Oct. 1. Frankly, I am really not too optimistic about next stimulus package. If it happens that’s great!

 

The bottom line: In my view, we shouldn't panic looking to these pullback/correction. Rather, I  continue to use these dips as good buying opportunities to accumulate stocks which I think has good future potential. More on my October Blog in next 2-3 weeks. Meanwhile, I may conduct my “Investment Meet” next week. Stay tuned to know more!