From The desk of Margaret Sucré-Vail
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Greetings!
As we get closer to the 2020 election its particularly interesting to see what is driving markets....... On a special, with our partner Russell Investments Market Week in Review, here are highlights of comments from Mark Eibel, Director, Client Investment Strategies, and Research Analyst Laura Bardewyck discussed recent economic data releases, the current market selloff and the potential influence of U.S. election season on markets.
Key takeaways from the August employment report
Two big numbers released the week of Aug. 31 painted an improving picture for the U.S. jobs market: Weekly initial jobless claims and total non-farm payroll additions. For the first time in months, the number of initial unemployment claims dropped below 900,000—still significantly above normal, but well below the record highs seen in March and April.
Meanwhile, the August employment report from the Bureau of Labor Statistics showed that the nation added approximately 1.4 million jobs last month—near to slightly above consensus expectations. In addition, the unemployment rate fell to 8.4%—an improvement from July’s reading of 10.2%, but still more than double its pre–pandemic level of 3.5%.
The two figures that most people focus on in the U.S. employment report—non-farm payrolls and the unemployment rate—actually come from two separate surveys. The unemployment rate is calculated from the household survey, and job additions (or losses) are calculated based on the payroll survey. Because of this, the monthly employment report can sometimes present mixed messages. August’s report is an example of this, given that it shows both strong job gains and high unemployment.
Overall, though, the jobs report does provide further evidence that the U.S. economy is moving in the right direction, adding that U.S. manufacturing and housing data is also trending better. Europe, recent economic data suggests a bit of a slowdown in the region’s recovery, due to a resurgence in COVID–19 cases. Europe’s current situation is a bit reversed from the U.S., where infection rates have leveled off, but the expectation is the economic data in both regions to fluctuate a bit depending on the course of the virus.
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Selloff in tech stocks drags market lower
Turning to the downturn in U.S. markets, which began Sept. 3 with a 3.5% drop in the S&P 500® Index, that the selloff is being led by large technology stocks. These tech names have more or less been going straight up for the past few months—and stocks simply can’t go straight up forever. What we’re seeing now is the market taking away a little bit of the valuation from large cap growth equities.The perfect lesson for a disciplined diversified portfolios and not investing in trends and timing the markets.
Could the looming U.S. elections spark additional market volatility?
While the current market drop isn’t being driven by U.S. politics, the upcoming U.S. elections could wield a larger influence on markets in coming weeks, especially as summer transitions to fall. However, at the moment, investor attention is mainly focused on other issues, primarily related to COVID–19.
In a normal year, an upcoming presidential election would probably be responsible for a little bit more volatility in the market—but right now, that volatility is being driven by other things. Simply put, there’s just not much of an election effect in markets right now,” Eibel stated, cautioning that this could change after the U.S. Labor Day weekend.
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Sincerely,
Margaret Sucré-Vail
AIF ® AWMA ®
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