2020 may go down as the longest year ever.  The 3^rd quarter started as a break from the 1^st half of the year.  July and August rolled along with the market rally following the March market drop.  But then came September.  That is where we’ll spend our time.

The driving force for the US market rally was the tech sector.  Facebook, Apple, Netflix, Google, Amazon, Tesla and the like.  While these stocks reached record share prices, more than half of the S&P 500 was flat.  The tech stocks are traded in the S&P, NASDAQ and DOW.  The movement of the tech stocks can most closely be monitored in our portfolio as the SCHG, an ETF for large cap growth stocks.

Momentum investors buy stocks that they see going up in hopes that the upward move will continue.  When the COVID-19 shut down hit the US in March, many folks found themselves sitting at home looking for new entertainment.  They jumped into the stock market for the very first time.  Apps such as Robin Hood and trading platform E*Trade saw their new accounts soar.  During the summer as much as 25% of the S&P trades were being made by investors with little or no experience or advice.  Even worse, much of the money they were investing was borrowed. 

The day of reckoning came in September.  Japan’s SoftBank had placed a bet thought to have been near $15 billion in the tech stocks at the beginning of the rally.  But as the market moved into September SoftBank managers decided that tech was running out of steam.  Over a 3-day period SoftBank pulled its original investment and gains off the table.  Tech shares went into a slide.  The momentum investors knee jerk reaction was to sell their shares, all of them.  The market was pulled down.

Meanwhile, a rotation has begun from overweighted tech stocks to small, midcap and dividend paying stocks.

Several other issues were at play in September.  Would there be a vaccine for the Chinese virus?  Would there be the 200,000 additional deaths in the US as some were predicting?  A resurgence of the virus in Europe raised fears that the economy would once again be shut down in several countries.  Would the US face another shutdown?  August vacations were blamed for the climbing infections in Europe.  In the US, numbers also went up but the fatalities rate went down.  The higher numbers in the US were credited to widespread testing, social gatherings, and the return to college campuses. 

The presidential election has also factored into the market but no real impact is expected until next year, unless there is a delay in determining the winner.  The market hates uncertainty and any question about the election outcome would fit that bill. 

A weak dollar is expected to support the price of gold, commodities, and emerging markets.  The financial sector continues to lag.  Loan defaults are an expectation of the COVID-19 shutdowns. 

If you have questions, please feel free to call me (865) 368-1917.  I look forward to hearing from you.  Don’t forget to vote.