FXTM information and reviews
FXTM
93%
IronFX information and reviews
IronFX
92%
Libertex information and reviews
Libertex
91%
FXCC information and reviews
FXCC
90%
Markets.com information and reviews
Markets.com
89%
FxPro information and reviews
FxPro
88%
EUR/USD
1.1730
BTC/USD
47 499.18
GBP/USD
1.3751
USD/JPY
109.9450
USD/CHF
0.9316
USD/CAD
1.2765
EUR/JPY
128.9676

US stocks down in September. A minor correction or a trend reversal?


30 September 2020

When the coronavirus crash hit in late March this year, it was certainly unexpected. But despite the extent and speed of the decline, we were almost taken more by surprise at how quickly stocks recovered afterwards. It really was an unprecedented reversal. And while many had predicted a V-shaped recovery, the sharpness and seemingly unstoppable momentum of the subsequent uptrend was something nobody saw coming back in April. Despite losing over 30% in less than a month, the great barometer of US equities – the S&P 500 – went from market bottom to a new all-time high in just 143 days.

It seems, however, that stocks may be running out of steam in September, with the tech and energy sectors leading the downside. In what was one of the worst days for the market in recent times (23/09/2020), the S&P 500 slipped more than 2% while the NASDAQ fell 3%. This brings the MTD losses for these two key indices to 9% and 5% respectively. While not quite as severely affected, the Dow Jones is also down 2.5% MTD. It may well be the case that stocks usually don’t fare particularly well during this month, but the current decline is starting to look like more than just a seasonal correction.

Although it is still unclear whether this is just a correction or a nascent downtrend, there are several factors at play that could explain the negative dynamic.

Big tech is hugely overvalued


Looking back over the recent rally, we see that tech stocks led the way. This was perfectly understandable as they were some of the only companies that were not only largely unaffected by lockdown and quarantine but actually benefitted from it to some degree. Given the nature of the US economy, every major index has a significant weighting of internet-based and other technology firms in their make-up, so when this sector rises, it drives up the entire value of the basket. But after huge gains over the summer, household names like Amazon, Apple, Netflix and Tesla are now returning to somewhere closer to their fair value, which is dragging down the indices. This is why the tech-focused NASDAQ has lost the most among all the major US indices.

No stimulus plan


It’s no secret that the US economy is heavily dependent on in-person services and general consumption, which is precisely why it was so severely hit by the pandemic-induced lockdown. With many services unperformable for some time, the people who would usually perform them had literally no income.

Luckily, the country’s government stepped up and provided its citizens with generous benefit payments of $1,200 per adult (plus an additional $500 for every child).

Without this intervention, the consumption of non-essential goods and services would have almost certainly ground to a halt. Fast forward to today and — while many businesses have restarted operations — there’s still an army of unemployed workers who need another stimulus check if they are to have any hope of maintaining their standard of living. Both parties want a deal but simply cannot agree on the size of the eventual package. Until there is one, the previous level of consumption won’t be able to continue, which means many stocks are overvalued.

US Presidential Election imminent


The race for the White House is heating up as 3 November edges ever closer. Regardless of who ultimately claims the victory, the uncertainty that comes with any presidential election is always liable to unsteady the markets. But with Biden looking the likelier of the two major candidates, the destabilising effect is even greater.

The Democrat frontrunner has repeatedly stated his intention to raise the corporate tax rate from 21% to 28%. That really couldn’t come at a worse time for Wall Street.

After battling the coronavirus crisis to post better-than-expected earnings, many US companies are now facing the prospect of having their hard work undone. The historical data suggest that this volatility will subside a short time after election results are in. However, if we do see a Biden White House, the downtrend could be prolonged.

Get your piece of the action with Libertex


Whether you believe that this is just a minor bump in the long road to recovery or the start of a genuine trend reversal, you can always test your theories with Libertex. This is because we offer both long and short positions on a wide range of indices, including the S&P 500, NASDAQ and Dow Jones. That means we can help you invest your money whichever way you think these key indices are headed.

#source

Related

US Retail sales and other data has supported Dollar
US Retail sales and other data has supported Dollar

The US Retail sales notably exceeded expectations, adding 0.7% in August vs an expected 0.7% decline. The increase to August last year is an impressive 14.9%...

17 Sep 2021

Geopolitics Fire Up Up and Cryptos Are Booming
Geopolitics Fire Up Up and Cryptos Are Booming

Futures in the United States and Europe are trading lower today as investors are worried about the new security agreement between the U.S., the U.K. and Australia...

16 Sep 2021

UK inflation surges, stocks struggle
UK inflation surges, stocks struggle

European markets flat at the open this morning as UK inflation surged to a record high in August and Chinese economic data was soft. China’s retail sales fell to...

15 Sep 2021

Gold is anxiously waiting for the US inflation data
Gold is anxiously waiting for the US inflation data

Gold, hovering around $1790 since last Thursday, might take an even harder hit. The bears are waiting for a good signal to launch an attack. It is now holding it below significant levels...

14 Sep 2021

Here Is Why Stock Futures Are Trading Lower
Here Is Why Stock Futures Are Trading Lower

Despite a week of doom and gloom in the stock markets, futures in the United States are still trading lower. Since February, the S&P 500 has been on its longest...

13 Sep 2021

Fintech - too big to be?
Fintech - too big to be?

Two of the world’s largest economies are in sync with pressure on their fintech giants. Access to user data and the growth of ecosystems have effectively...

13 Sep 2021


Editors' Picks

OctaFX information and reviews
OctaFX
86%
HotForex information and reviews
HotForex
85%
XM information and reviews
XM
80%
FXCM information and reviews
FXCM
79%
Vantage FX information and reviews
Vantage FX
78%
Moneta Markets information and reviews
Moneta Markets
77%

© 2006-2021 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.