The big-time potential of small cap stocks [PODCAST]
Pinpointing winners requires a sound investment process.
Pinpointing winners requires a sound investment process.
SEPTEMBER 2020 MARKET UPDATE
The stock market set a new record high in August, as the S&P 500® finished the month at 3,500.31, representing a gain of more than 20% over the past 12 months and 8.34% since the start of the year.
The surge in stocks has come against a backdrop of high unemployment, shrinking gross domestic product (GDP), and the closing of thousands of small businesses due to the COVID-19 pandemic.
What is behind the market’s surprising rise? Much of the increase is attributed to the unprecedented action of Congress and the Federal Reserve (Fed), which have injected trillions of dollars into the economy to provide financial assistance for struggling businesses and laid-off workers.
But there is also some muscle behind the numbers. Many technology-related firms have reported strong growth, as well as certain retailers – both online and brick-and-mortar – such as Amazon, Walmart, Target and Home Depot. (See Where is the “Shock and Awe” as Market Surges?)
The S&P 500 index was up 7.01% in August– from 3,271.12 at the July close to 3,500.31 at the end of August. The total return of the S&P 500 index (including dividends) was 7.19% for the month and 9.74% year-to-date. (The S&P 500 is a market-cap-weighted index that represents the average performance of a group of 500 large capitalization stocks.)
The NASDAQ Index also had a strong July, up 9.59% for the month. It was up 31.24% year-to-date. (The NASDAQ – National Association of Securities Dealers Automated Quotations – is an electronic stock exchange with more than 3,300 company listings.)
Retail sales continued to recover in July from a steep drop earlier in the year when many businesses across the U.S. were closed as part of the pandemic lockdown. Retail sales for July were up 1.2% from the previous month, and 2.7% above July 2019, according to the Advance Monthly Sales report from the Department of Commerce issued August 14.
Automobile sales cooled off in July after rebounding in June with an 8.2% increase from the previous month. Auto sales were down 1.2% for month, but still up 6.1% from July 2019. Electronics and appliance stores also continued a strong recovery, up 22.9% from the previous month, but still down 2.8% from the same period a year earlier. With many bars and restaurants reopening, food services and drinking places were up 5.0% from the previous month, but still down 18.9% from a year earlier.
Sales for non-store retailers (primarily online), which experienced strong growth early in the pandemic, were up just 0.7% for the month, but still up 24.7% from the same period a year earlier.
Unemployment remains at a high level, with many businesses still closed as a result of the pandemic. While many people have returned to work, American workers continue to file unemployment claims at a high rate. During the four-week period through August 22, the Department of Labor reported more than one million new unemployment claims each week.
Despite the new claims, the advance seasonally adjusted insured unemployment rate declined 0.2% for the week ending August 15, bringing the unemployment rate down to 9.9%.
All but two of the 11 sectors of the S&P 500 index made gains in August. The Utilities sector was down 2.65% and the Energy sector was down 1.02%. Information Technology led all sectors, up 12.01% for the month.
The chart below shows the results of the 11 sectors for the past month and year-to-date:
After dropping to its lowest level since the government began offering bonds in 1790, the yield on 10-year U.S. Treasuries moved up in August from 0.54% at the July close to 0.70% at the end of August. The low yields are attributed to two significant cuts in the Fed funds rate by the Federal Reserve and to an increase in bond demand as investors sought a safe haven amidst this uncertain economic period.
Oil prices have continued to rebound off of historic lows, as motorists have begun to return to the road – although air travel is still significantly below normal rates.
West Texas Intermediate, a grade of crude oil used as a benchmark in oil pricing, was up 5.81% in August, from $40.27 at the end of July to $42.61 at the close of August.
International stocks have continued to recover along with U.S. stocks, although the recovery has not been as robust. The MSCI EAFE Index, which tracks developed-economy stocks in Europe, Asia and Australia, was up 4.93% in July, although it is still down 6.23% year-to-date.
Media contact: Samantha Mehrotra, 612-844-4197; email@example.com
All information and representations herein are as of 09/03/2020, unless otherwise noted.
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Thrivent Asset Management, LLC associates. Actual investment decisions made by Thrivent Asset Management, LLC will not necessarily reflect the views expressed. This information should not be considered investment advice or a recommendation of any particular security, strategy or product. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon, and risk tolerance.
This article refers to specific securities which Thrivent Mutual Funds may own. A complete listing of the holdings for each of the Thrivent Mutual Funds is available on thriventfunds.com.
Any indexes shown are unmanaged and do not reflect the typical costs of investing. Investors cannot invest directly in an index.
Past performance is not necessarily indicative of future results.