S&P 500 lost 3.92% in September, finishing at 3,363.00. YTD through September 30, 2020 the S&P 500 is up 4.09%. Although the month was down, the S&P 500 gained 9.3% during Q3 2020. A snapshot of ETF asset class returns for the first three quarters of 2020 (please click on image to enlarge):
Now, let's review price, sentiment and valuation as we countdown to U.S. Election Day. Note: This will be my last monthly market update. Thank you for reading.
PriceSource: Advisor Perspectives, Moving Averages Update: September
This month, Jill Mislinksi wrote the following at Advisor Perspectives:
"At this point, after close on the last day of the month, all three S&P 500 strategies are signaling "invested" — unchanged from last month's triple "invested" signal. Four of five Ivy Portfolio ETFs — Vanguard Total Stock Market ETF (VTI), Vanguard FTSE All-World ex-US ETF (VEU), and iShares Barclays 7-10 Year Treasury (IEF), and Invesco DB Commodity Index Tracking (DBC) — are signaling "invested", a decrease from last month's quintuple "invested" signal."Ivy Portfolio quintuple "invested" signal lasted for one month. VNQ switched from an "invested" signal back to "cash" at the end of September. IEF has signaled "invested" since the end of November 2018. VTI has signaled "invested" since the end of May 2020. VEU has signaled "invested" since the end of July 2020. DBC has signaled "invested" since the end of August 2020. Remember, these signals last for one month based on the closing value on the last trading day of the month. Ivy Portfolio tactical investing signals mainly help investors avoid prolonged drawdowns and participate in prolonged uptrends.
As of this writing on October 8, 2020 the CNN Fear & Greed Index is "Neutral," reading 55. This is slightly more greedy compared to the end of September when it was reading 45. None of the seven components of this index currently read "Extreme Fear." Now let's examine the VIX, starting with this chart from Ally's Q4 2020 Outlook:
CBOE Volatility Index (VIX) remains elevated above 26. Until the VIX consistently drops below 26 investors should expect more than normal volatility in their portfolios.
Valuation
Valuation
Source: NDR, via Twitter
Willie Delwiche, CMT, CFA, Baird's Investment Strategist, described the above picture as:
"Half the stocks in the S&P 500 have P/E ratio's above 28x. Over the past 50+ years, all of the net gains in the index have come when the median P/E has been below 21x. Even if you are a long-term investor, looks like stocks are priced for more risk than reward."Unfortunately, overvalued markets frequently become more expensive, making valuation analysis a poor short term trading signal.
PSV (Price, Sentiment, Valuation) Summary
At the beginning of October, four of the five asset classes signal "invested," only VNQ signals "cash." Sentiment starts the month "Neutral." VIX readings remain elevated and serve as a warning to investors. Valuations remain expensive for many asset classes. Return expectations for the next ten years should be low. As Liz Ann Sonders, Chief Investment Strategist at Schwab, has pointed out multiple times, valuation metrics exist to fit every investor narrative.
Market and Economic Perspective
Market participants seem focused on fiscal stimulus. Specifically, they seem concerned with stimulus timing. Of course, a fiscal package is never certain until it is signed into law.
At the beginning of October, four of the five asset classes signal "invested," only VNQ signals "cash." Sentiment starts the month "Neutral." VIX readings remain elevated and serve as a warning to investors. Valuations remain expensive for many asset classes. Return expectations for the next ten years should be low. As Liz Ann Sonders, Chief Investment Strategist at Schwab, has pointed out multiple times, valuation metrics exist to fit every investor narrative.
Market and Economic Perspective
Market participants seem focused on fiscal stimulus. Specifically, they seem concerned with stimulus timing. Of course, a fiscal package is never certain until it is signed into law.
Right now, it appears everyone considers passage of a fiscal support package a high probability event. Attention appears to have shifted from "will there be a stimulus?" to "when will the stimulus arrive?" As we watch the political theater around the next stimulus package, remember the CARES ACT passed the Senate on a 96-0 vote in late March. To learn more about the U.S. governmental response to the COVID recession, visit Federal Reserve Bank of Saint Louis' site Timeline of Events Related to COVID-19 Pandemic.
Theoretically the next aid package will look different depending on when it passes. Please pay attention to these three time windows regarding additional fiscal support:
- Before the Presidential election: smallest package and most targeted
- Between Election Day and Inauguration Day: medium sized support ~$1.7T
- After Inauguration Day: If a Blue Wave=Largest Support Package; If Republicans maintain majority in the U.S. Senate and Biden wins=possibly no support up to ~$2T; If Republicans maintain majority in the Senate and Trump wins=More targeted business support, less unemployment insurance and state support.
Let's end with a quote:
"We the people, elect leaders not to rule but to serve." -Dwight D. Eisenhower, Inaugural Address 1953
As always, wise investing my friends.
Please consult a qualified financial advisor before making any investment decisions. This blog is for educational purposes only and does NOT constitute individual investment advice.--------------------------------------------------
Here's what I've been reading and listening to recently:
- Optimism in the Time of COVID [Speech by Randal Quarles] (Federal Reserve)
- Brexit Is Back: The Endgame For Investors (Schwab)
- Are reflation hopes a mirage? (Fidelity)
- The Little Things That Make Employees Feel Appreciated (Harvard Business Review)
- Aging and Equities: Selling Stocks for the Long Term (CFA Institute)
- After The Plague (Planet Money)
- Who spends the longest time in retirement? (World Economic Forum)
- 5 Ways Financial Planning Can Help (Schwab)
- David Rosenberg: Five signs that show this stock market is in a bubble (FP)
- Today’s older workers may see the first cuts to Social Security benefits (MarketWatch)
- Transit workers, truckers and teachers say Allianz gambled away billions in pensions (CNN)
- What to know about critical minerals – the key to our clean energy future (World Economic Forum)
- What Is Money? This Author Dug Into the Fun History of How a Made-Up Thing Came to Rule the World (Money)
