Investment Update: September 4, 2020 - Gravity: A Natural OccurrenceSubmitted by Affinity Capital on September 4th, 2020
The markets will rise, and gravity will weigh them down and like gravity in nature, this is a natural occurrence. The pullback in the markets Thursday and Friday are reminders that gains and losses are a consistent and normal part of investing.
Our markets have had an impressive climb from their lows in March to new highs in the last week. It is a natural pattern for the markets to retreat as Wall Street takes profits after a big market move. We have often mentioned the normal patterns of the markets include two steps forward and one step back. Sometimes it is ten steps forward and four or five steps back, which is normal. We are monitoring fundamentals of the markets as well as catalysts that may amplify market movements.
A day or two of market activity does not make much of a trend so we will wait and see what next week brings. Should this brief sell-off accelerate, a total short-term market decline in the Dow Jones Industrial Average of minus 6% to 10% would be a reasonable area to watch, and perhaps a minus 10% to 15% on the technology heavy Nasdaq.
You may hear terms such as “meltdown”, “slammed” and “rout”, where we see a normal market pullback after a very strong 5-week win-streak. Emotions tend to be heightened by the media!
Here are several areas we are monitoring:
- Overall, the economic numbers are looking good when all things COVID are considered.
- It appears that the White House and Congress have committed to a stop-gap funding plan in order to avoid a government shutdown past September 30th.
- A second stimulus plan continues to be negotiated.
- The markets are looking for that key catalyst of a vaccine.
- A vaccine will open many important states that are economic engines for our nation and will drive positive activity across the country.
- The election season traditionally begins in earnest following Labor Day.
Next week, we will address the “Question of the Day” or better yet, the next 74 days:
How will the markets react to the election and what is our portfolio strategy?
As always, please feel free to call anytime. We appreciate the opportunity to serve you and your family.
Have a safe and happy Labor Day weekend!
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