Investors have had a lot to process over the past few days. Domestic equity declines on top of global ones dovetailed with the loss of legendary Supreme Court Associate Justice Ruth Bader Ginsburg as well as a rise in COVID-19 cases across the nation. The Dow Jones Industrial dipped almost 3% on Monday, and the S&P 500 slid more than 2% from the previous week, off about 7% from its recent highs earlier this month. Large-cap tech names, which had experienced a run up in recent months, began to drag on the broader markets this week, while the rest of the stocks generally held their ground.
September has historically been a weak month for equities. Raymond James Chief Investment Officer Larry Adam has repeatedly cautioned that this seasonal slump combined with expected election volatility and valuations at their highest level in almost two decades could make the equity markets vulnerable to the modest pullback we’re seeing now.
Progress on the pandemic has been a mixed bag of late, one step forward, two steps back. The daily average number of cases jumped 17% within a week, according to Raymond James Healthcare Analyst Chris Meekins, although the seven-day average continues to hover around 5%. Labor Day gatherings, schools reopening and relaxed mitigation measures likely all contribute to the uptick, he believes.
The passing of Justice Ginsburg leaves an opening on the Supreme Court late in an already-contentious presidential election cycle – potentially ushering in a partisan political battle, as well as a shift in the electoral landscape, according to Ed Mills, Washington policy analyst.
The latest economic reports also reflect a more moderate recovery, following sharp-but-partial improvement over the summer, explains Chief Economist Scott Brown. The Federal Reserve continues to do its part to provide liquidity to the financial system, but another round of government assistance might be hindered by political division ahead of the election with a Supreme Court vacancy in the balance.
We continue to view unprecedented global stimulus and record low interest rates as supportive of equities over the intermediate term, adds Senior Portfolio Analyst Joey Madere, who sees short-term volatility as potential opportunity to selectively add to a portfolio. We tell you this to provide you with perspective as we manage through market weakness over the tail end of the year. Thank you for your continued trust in us.
The Gratz Park Private Wealth Team