A Positive Q4 Call

Call it a pause or a tech sector cool down, either way the markets in general let out some steam in September, which was evidenced by the NASDAQ’s roughly 11% pull back from the record high on September 2nd in what was arguably a welcomed sell off in the very hot tech sector. Investors were reacting to a variety of issues including; weakness in the European banks, renewed concerns around an uptick in COVID cases, an embroiled U.S. congress over the fiscal package and speculation jitters around the potential for a contested U.S. election. All of which lead to some profit taking which drove the major indices lower by month end. Most major currencies also gave up ground to a revived U.S. dollar while gold lost some luster as expectations of higher inflation diminished. Fixed Income for the most part played its traditional role and held its ground amidst the risk off selling, and while there was a momentary pause in spreads tightening, the copious amounts of liquidity provided by the Fed and Central Banks has allowed the debt markets to continue to steadily rebound from the liquidity grid lock that occurred during March and April this year. 

We wanted to share with you some interesting things we noticed when we compared the 2020 year-to-date daily price trend for the S&P 500 index to the average trend line in every presidential election year going back to 1945. What we noticed is that; if you overlook the larger swings such as the massive drop in March and the recent pull back in September, the daily price trend line for 2020 is strikingly similar to the historical average trend line. This is supportive of our market call for the S&P 500, and incidentally the TSX, finishing the year higher.

The average trend line pauses in October, prior to the election, and then resumes an upward trend in November through to the end of the year. If the past is any indication history supports our call for a higher year end for the S&P.

If you would like to receive a copy of our monthly market commentary, please email us.