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Weekly Market Update (September 14 - September 18, 2020)

By: Craig Fehr, CFA September 18, 2020

Canadian stocks finished mixed, while U.S. stocks closed at a six-week low, driven by weakness in technology stocks, which exert an outsized influence on major indexes because of their size. Even though more than 70% of the S&P 500 stocks were higher, the index closed lower for the third week in a row. On the flip side, cyclical, small-cap and international stocks, and oil, all rebounded, finishing positive for the week. The Federal Reserve signaled that it will keep rates near zero through at least 2023 to help the economy weather the health and economic crisis. Canadian retail sales showed that the economic recovery is progressing, but the pace of improvement is slowing. In this environment, we believe, as last week demonstrated, that well-diversified portfolios can be better prepared to weather volatility.

Three Key Market Matchups

Fall officially ousts summer this week, ushering in traditional seasonal changes (back to school, weather, holidays, etc.) that may pose particular implications for economic conditions over the remainder of the year given the unique environment. Fresh economic readings, politics and the latest U.S. Fed meeting were all on stage last week, highlighting three key market matchups that will shape the investment landscape as we advance through 2020.

1. The Tech Selloff vs. the Bull Market:

  • The stock market found a little footing for most of last week following the recent abrupt tech-led selloff that saw the Nasdaq fall 10% and the TSX and S&P 500 drop 4% and 7%, respectively, in just three days1
  • Domestic equities were up 50% and U.S. stocks had risen by 60% from late-March to early-September in nearly straight-line fashion. S&P 500 technology stocks were the lead horse, gaining 80% during that stretch, including an average gain of 91% from the big five (Apple, Microsoft, Google, Amazon, and Facebook)1. We're never delighted by market declines, but a breather was probably necessary, if not healthy.
  • At the same time, last week's stabilization (the market was up for most of the week until a late-Friday dip) was appropriate as economic conditions and monetary policy settings (as affirmed during the Fed's statement last week) are still more supportive than punitive for the market.


  • We think the new bull market will have more staying power than the tech selloff. That said, we don't think the short-term dip has set the market up to resume its trajectory of the past five months. Given technology's hefty gains and extended (but not bubble) valuations, alongside the industry's compelling growth outlook, we think tech shares may continue to be a leader in both the rallies and the dips ahead. 
  • In the five years leading up to 2020, there were five S&P 500 pullbacks of this size (7%)1. Only one of them became notably more acute (late 2018: -19%), but we'd note that for all five instances, the market was higher by an average of 6.4% two weeks later and up 14.4% six months later1. We don’t expect those size gains to necessarily be repeated this time, but we do think this highlights the resiliency of the market amid expansionary conditions.
  • The market is up nearly 50% in the last six months and is pricing in a rather favourable outlook for earnings1. In our view, this likely moderates the pace of gains ahead and makes the market more vulnerable to periodic, temporary dips, but we think conditions are in place for the broader bull market to endure.

2. COVID-19 vs. Consumers:

  • The pandemic and ongoing partial shutdown are competing against progressively-healing consumer conditions for the driver's seat of the economy. Impairments to certain industries (most specifically travel and leisure), elevated unemployment, and setbacks in the economic reopening process highlight the ongoing challenges in recovering from the sharpest economic contraction on record.
  • That said, recent data show promise for the rebound, most notably around the consumer, which is particularly impactful given household spending constitutes more than 50% of domestic GDP and 70% of U.S. GDP1.  Economic readings released last week were consistent with improving consumer conditions, including:
    • A fourth straight monthly increase in Canadian existing home sales along with the latest NAHB U.S. home builders index rising for the fifth consecutive month to a fresh high
    • U.S. initial jobless claims falling to the lowest level since mid-March
    • The University of Michigan Consumer Sentiment Index rising to a six-month high; and
    • Canadian retail sales rising for the third consecutive month (July) and U.S. retail sales increasing for the fourth straight month (August)


  • The pandemic has inflicted significant damage on the economy, and we don't anticipate a return to pre-pandemic GDP levels for some time. Until a vaccine is available for mass distribution, we think the health crisis will be the prominent headwind, restraining, but not extinguishing economic growth. We think the Canadian and U.S. consumer prevails in guiding a lasting economic expansion.
  • With consumers responsible for the lion's share of GDP growth, the pace will be governed by household incomes and confidence. Both of those factors should see support from further, but more modest, declines in unemployment. The unemployment rate remains only slightly below peak levels from past recessions, leaving ample room for ongoing labour market improvement as the economy is slowly reopened. 
  • At the same time, while overall retail sales have already returned above pre-pandemic levels, the pace of spending growth has slowed, which we attribute to the fading effects of the initial federal fiscal-relief packages from Washington.  We think fiscal relief has helped support consumption levels amid the disruption in the labour market, amplifying the impact of current U.S. Congressional negotiations around another round of fiscal aid needed to bridge the gap to the other side of the pandemic.

3. The Election vs. Fundamentals:

  • The U.S. presidential election is a month and a half away and as the campaigns ramp up, so too will political uncertainties, accompanied by polarizing rhetoric and headlines. This election highlights the difference between Trump and Biden on key policy elements such as taxes, regulation and the government’s role in economic growth. These differing policy principles are perhaps more acute given the existing pandemic and current political environment, but they are not new or unique to this election.
  • The election outcome poses different policy approaches, but in our view, neither administration will solely determine the longer-term fate of the economy or the financial markets.
  • We expect market fluctuations to increase as we approach the election, given the political climate and potential policy shifts. Historically, market volatility has risen in the two months ahead of an election but has subsided by an average of 16% in the month afterward, with smaller post-election fluctuations reflecting reduced political uncertainty regardless of the outcome, though we'd acknowledge that the possibility of a contested outcome could cause an extension of election-related volatility beyond November 3rd.


  • History shows that over time, market performance is driven principally by fundamentals, not elections. Trends in economic conditions, corporate profits and interest rates have been the more powerful and lasting guide for investment values.
  • We think the combination of a sustained-but-gradual economic expansion, rebound in corporate profits, and an ongoing monetary policy stimulus – though not immune to presidential policies – will set the broader course for the markets regardless of the election outcome.

Craig Fehr, CFA
Investment Strategist

Source: 1. Bloomberg

The Stock & Bond Market

Index Close Week YTD
TSX 16,198 -0.2% -5.1%
S&P 500 Index 3,319 -0.6% 2.7%
MSCI EAFE 1,911.81 0.8% -6.1%
10-yr GoC Yield


0.0% -1.1%
Oil ($/bbl) $40.92


Canadian/USD Exchange $0.76 0.1% -1.6%
Source: Factset, 09/18/2020.  Bonds represented by the iShares Core U.S. Aggregate Bond ETF. Past performance does not guarantee future results.

The Week Ahead

There are no major economic releases in Canada. Economic data being released in the U.S. include existing home sales on Tuesday, the September preliminary Purchasing Managers' Index on Wednesday, and durable goods orders on Friday.

Important Information

The Weekly Market Update is published every Friday, after market close. 

Edward Jones does not provide access to past weekly summaries. 

Market indexes are unmanaged and cannot be invested into directly and are not meant to depict an actual investment. 

Past performance does not guarantee future results. 

Diversification does not guarantee a profit or protect against loss. 

Systematic investing does not guarantee a profit or protect against loss. Investors should consider their willingness to keep investing when share prices are declining.

Dividends may be increased, decreased or eliminated at any time without notice. 

Investors should understand the risks involved of owning investments, including interest rate risk, credit risk and market risk. The value of investments fluctuates and investors can lose some or all of their principal.

Special risks are inherent to international investing, including those related to currency fluctuations and foreign political and economic events.

The content of this report is for informational purposes only and should not be interpreted as specific investment advice. Investors should make investment decisions based on their unique investment objectives and financial situation. While the information is believed to be accurate, it is not guaranteed and is subject to change without notice.

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