Sept. 25 2020 - The stock market managed to have something for everyone this week: rallies, drops, intra-day reversals in either direction.
This of course means that most investors didn't get much of what they want, unless what they wanted was volatility.
The "Stock Market" isn't a singular entity though, and while most corners of the market experienced some volatility this week, the outcomes in terms of gains and losses were even more widely dispersed than normal.
Even the major indices, which contain a lot of the same stocks posted a wider spread in their results than normal. The Nasdaq, filled as it is with tech stocks, rose, while the S&P 500, which contains a broader mix of stocks fell. The Dow, where price weighting and Apple's stock split caused technology to be under-represented, posted a pretty significant decline.
For an example of how much things swung around this week, let's consider Apple (AAPL). Over the first four days of the week, the stock had intra-day trading ranges of 6.4%, 3.3%, 5% and 4.85%. Swings like this happen with small caps all the time, but with Apple's market capitalization of $1.9 trillion, a 1% swing in the price of AAPL is worth about $19 billion.
Apple's week had a happy ending as the stock posted a 5.1% gain on the week with most of that coming on Friday.
Other parts of the market didn't do so well however, Health Care, Financial Services, Energy, Biotechnology, Real Estate, Industrials, Materials and Consumer Staples all fell more than 1% this week. As of Friday, the end of the last full week of September, every sector is trading in the red for the month. The tech rally this week helps make some of the month's biggest losers look less bad. For investors hoping that the parts of the market that have lagged recently could recover, this week, and September as a whole, wasn't the time for that to happen. Energy stocks continue to fall and things are also pretty ugly for the financial services sector.
Last week, we noted that the S&P 500 Equal Weight Index posted a gain, while the cap-weighted version lost ground. This was, it seemed, a sign of things coming back into balance, with stocks that perform well in a healthy economy making up some ground on the stocks that have been leading the recovery.
This week's action was profoundly different. We noticed it Monday and the rest of the week didn't do anything to change our minds. Big tech is decidedly back in favor, and the rest of the economy... not so much.
The S&P Equal Weight lost 2.7% this week, badly underperforming it's cap-weighted cousin.
This uneven, or K-shaped recovery is starting to become a theme in financial media. High-level looks at the levels of major indices, compared to economic indicators like persistently high new claims for unemployment seem incongruous, but may actually make perfect sense when you look at which companies are driving the indices higher.
That unevenness shows up when you slice the economy in other ways too. We're starting to see some regional variation in the recovery, not just due to regional differences in infection rates, but also due to different industrial mixes in different parts of the country. States with a high dependence on in-person services are recovering much more slowly than those that rely on other industries.
This pattern seems likely to continue in the near-term. Fiscal stimulus seems to be off the table at this point, and while coronavirus death rates have declined as treatment has improved, the virus remains as contagious as ever. It is possible, if not likely, that we'll see continued elevated volatility into the election and potentially beyond as the market tries to get a handle on what kind of policies will be enacted during the next phase of the recovery.
All told this week, the S&P 500 lost 0.63%, the Nasdaq rose 1.1% and the Dow Jones Industrial Average fell 1.75%.