September 9, 2020
The S&P 500 Index recorded its best August gain since 1986, as rising investor confidence that a Covid-19 vaccine is imminent and massive global stimulus propelled equities higher. The rebound in stocks also reflects an improving outlook for the economy and corporate earnings vis-à-vis the market bottom in March. The Citi Economic Surprise Index surged to a record high in August, with a broad swath of economic metrics better than expected – or more precisely, better than economists previously feared. However, historic excess liquidity, a fear of missing out, and a lack of investments other than equities that offer adequate return potential pushed the S&P 500 to overbought levels. FAANG + M technology stocks (i.e., Facebook, Amazon, Apple, Netflix, Google, and Microsoft) continued to lead large capitalization indices higher, and market gains broadened modestly in August.
We remain constructive on domestic equities over the intermediate and long term, yet are mindful of the multitude of risks and uncertainties that will keep stocks volatile and vulnerable to pullbacks near term. Equity market gains have been exceptionally concentrated year to date, with the performance of large cap indices dependent on a small number of technology-oriented companies. The FAANG + M stocks contributed 119 percent and 64 percent to the return of the S&P 500 Index and Russell 1000 Growth Index, respectively. At the end of August, these stocks remained extended, trading roughly 40 percent above the basket’s 200-day moving average. Given their hefty weighting in the two indices, a pullback in the FAANG + M stocks would weigh considerably on the performance of these measures. Despite our favorable longer-term outlook for the sector, we recently took profits in some technology highfliers and added to positions within healthcare.
Sit Investment Associates will continue to operate at the highest level during this outbreak, and we invite you to contact us with questions or concerns. You can reach us at 612-332-3223 or email us at firstname.lastname@example.org. We will continue to post updates about market and economic developments on our website at www.sitinvest.com.