August 2020 in Review
Betsy Pierson, CFA, Chief Investment Officer
This year found the S&P 500 on track for one of its best performing Augusts in decades. Typically investors head out for end of summer vacations, slowing markets, but that has not been the case. Several factors have led to the S&P’s all-time highs:
- Growth stocks have led the market higher with a strong emphasis on technology, communication services and healthcare. The top five or six stocks have accounted for a substantial portion of the upward movement; August has been no different. Apple and Tesla announced stock splits driving stock prices higher for both. Apple’s now over 6% in market weight and has returned over 17% month-to-date. The top 5 stocks now account for over 23% of total index weight.
- Chair Powell’s late August comments served as an additional boost to equity markets. Bottom line is that the Fed is not going to be the reason for the next recession. Interest rates will remain low allowing equity valuations to expand.
- With more time at home, interest in trading equities has increased. Almost 20% of all shares traded in 2020 have been by retail investors with some days accounting for over 25%. Much of their interest has been focused on the same stocks and sectors mentioned earlier. This has definitely been a source of momentum, pushing prices higher.
While the market’s at all-time highs, underlying risks could lead to a near-term correction:
- September is historically the worst performing month for equity markets. Seasonality can lead to a market pullback especially after the strong market run we’ve seen.
- A COVID resurgence could lead to governmental bodies retracing steps to open the economy. Several states still have limited openings and travel restrictions; risk of additional setbacks will increase if there’s a substantial uptick in cases. Until a vaccine’s approved and available to the public, this will continue to pose a risk.
- The upcoming election season may lead to more volatility and increased investor concerns. Outcome uncertainty is at the top of many minds wondering if Democrats will sweep and control all branches or will a split remain. Until there’s a definitive result, investors may hesitate to commit additional funds or decide to pull funds resulting in volatility.
While we may see a near-term correction, we still continue to believe that being in the market is a good long-term position. Thank you.
Midland Wealth Management is a trade name used by Midland States Bank, its subsidiary Midland Trust Company and its affiliate Midland Financial Advisors, an SEC registered investment advisory firm. Investments are not insured by the FDIC or any other government agency, are not deposits or obligations of the bank, are not guaranteed by the bank or any federal government agency, and are subject to risks, including the possible loss of principal.