Sept. 4, 2020 - This was a pretty exciting weeks for stocks. We got a broad rally on Wednesday, heavy selling Thursday and a Friday session that had a little bit of something for (most) everyone.
Wednesday was one of the best days we've seen in the market for a while. At one point there were 434 stocks in the S&P 500 trading in green numbers. This was encouraging as broad-based rallies tend to be longer-lived than those confined to individual sectors, industries, or a small number of stocks. It has been not uncommon in recent weeks for the major indices to post gains, even as most stocks lose ground.
In retrospect though, the cracks were starting to show early in the week. Apple (AAPL) lost a little more than 2% after gaining nearly 4% on Tuesday. Tesla (TSLA) cracked a day earlier, losing 4.7% Tuesday after adding 12.6% Monday.
Days in the stock market where winners fall and losers rally aren't particularly uncommon, particularly after such an uneven rally. Selling winners and buying laggards is how to effectively re-balance a portfolio after all.
Even Thursday, which was, by all accounts an ugly day for stocks (There were 442 stocks in the S&P 500 trading in the red at the lowest point.) saw relative out performance from sectors like Finance, while Technology saw the biggest losses. However, a day where the biggest stocks in the market lose four or five percent, or more is hard to save, and so Thursday's results were ugly. The S&P 500 lost 3.5%, The Nasdaq lost 5% and the Dow fell 2.8%.
Friday's session was interesting. Tech stocks started lower, but at one point early in the day 369 S&P 500 components were higher on the day. Conditions soon deteriorated though, and roughly that number were in the red before lunch time with all three indices posting steep losses again. Things rallied from there though, led by financial stocks, the market turned around and managed to turn another really bad day into one with only modest losses.
Buy Why?
There was no clear catalyst for this week's big moves. Neither Wednesday's rally, nor Thursday's anti-rally had a clear antecedent.That Tesla and Apple, both of which split their stocks on Monday, were among the first to start falling, suggests that maybe buyers just ran out of steam after the pre-split frenzy and the selling spread to other high-fliers before hitting the rest of the market.
Even with a couple of big down days this week, Apple is still up 11.6% since August 1, and has more than doubled since the market bottomed on March 23. Tesla is up 41.85% since August began, and an incredible 385% since the market bottomed. It seems pretty safe to say that things were, and maybe still are, a little frothy in some parts of the market.
Another possible trigger that we learned Thursday is that negotiations between congressional leaders and the White House will not combine a new stimulus package with bills needed to keep the government open when the current funding runs out later this year. This probably makes a government shutdown less likely, but likely makes passage of a new stimulus bill a bit more difficult.
The Jobs Report
This month's jobs report was better than expected, with slightly more people getting jobs than expected, and the unemployment rate falling further than expected. That said, the number of jobs added is slowing while the number of people who are permanently unemployed, as opposed to temporarily so, continues to rise. It is good that more people are working than had been forecast, but this report does not paint a picture of a health economy.The number of people who are temporarily unemployed continues to fall. In August the number fell by 3.1 million, leaving 6.2 million in this category, from a high of 18.1 million in April. Unfortunately, the number of people who have permanently lost a job rose by 534,000 last month, hitting a new high of 3.4 million. That number has increase1 million since February.
For comparison, there were a total of 10.3 million people classified as unemployed in August, compared to 2.9 million in August of 2019. The 6.2 million on temporary layoff compared to 812,000 in August 2019, while the 3.4 million people who have permanently lost jobs is more than double the 1.4 million in that category a year ago.
All told, the S&P 500 lose 2.3% this week while the Nasdaq fell 3.3%. The Dow Jones Indstrial Average lost 1.8%.