U.S. IPO Weekly Recap: The September IPO Market Kicks Off With A Quiet Week

While there were no IPOs this past week, five SPACs went public ahead of the post-Labor Day rush.

Casdin Capital and Corvex Management’s SPAC CM Life Sciences (CMLF) upsized to raise $385 million. Led by the firms’ founders, Eli Casdin and Keith Meister, the company plans to target the life science industry, specifically businesses in the life science tools, synthetic biology, and diagnostics fields.

Tech SPAC Tailwind Acquisition (TWND.U) raised $300 million. The company was formed by Chairman Philip Krim, co-founder and CEO of Casper (NYSE:CSPR), which is down 24% from its February IPO. Venture capitalist Chris Hollod serves as CEO, and Tengram Capital Partners co-founder Matt Eby serves as CFO.

INSU Acquisition II (NASDAQ:INAQU), the second blank check company formed by Cohen & Company and targeting the insurance industry, upsized to raise $200 million. Chairman Daniel Cohen and CEO John Butler serve in the same roles for Insurance Acquisition (INSU; +33% from IPO), which recently announced a merger agreement with Shift Technologies.

Boxer Capital’s warrantless SPAC BCTG Acquisition (NASDAQ:BCTG) upsized to raise $145 million. The company is led by Boxer Capital co-founders Aaron Davis and Christopher Fuglesang, and plans to leverage its management team’s experience and target a business in the biotechnology industry.

Life sciences SPAC HighCape Capital Acquisition (NASDAQ:CAPAU) raised $100 million. Led by HighCape Capital co-founders, the company plans target the life sciences industry, specifically therapeutics, devices, diagnostics, medical information technology, agrisciences, and animal health.

5 IPOs During the Week of August 31st, 2020



Market Cap
at IPO

Price vs.

First Day

at 09/04

CM Life Sciences






Blank check company formed by Casdin Capital and Corvex Management targeting a life science business.

INSU Acquisition II






Second blank check company formed by Cohen & Company and targeting the insurance industry.

BCTG Acquisition






Blank check company formed by Boxer Capital targeting the biotech industry.

HighCape Capital Acq.






Blank check company formed by HighCape Capital targeting the life sciences industry.

Tailwind Acquisition






Blank check company formed by Casper CEO Philip Krim targeting a technology business.

14 IPOs and 11 SPACs submitted initial filings.

SMB services provider Thryv Holdings (OTC:THRY) filed for a direct listing on the Nasdaq. Rare disease biotech Orphazyme (ORPH) filed to raise $115 million. Avocado supplier Mission Produce (AVO), LNG services provider Hygo Energy Transition (HYGO), gene therapy biotech Taysha Gene Therapies (TSHA), optical bonding company VIA optronics (VIAO), and oncology biotechs PMV Pharmaceuticals (PMVP) and Prelude Therapeutics (PRLD) all filed to raise $100 million. Ocular disease biotech Graybar Vision (GRAY) and medical device maker Pulmonx (LUNG) filed to raise $86 million. Plant-based beverage manufacturer Laird Superfood (LSF) filed to raise $40 million. Chinese real estate holding company Sancai Holding Group (SCIT) filed to raise $30 million. Chinese agriculture services provider Green Grass (QQCY) filed to raise $24 million, and micro-cap oncology biotech Lixte Biotechnology (OTCQB:LIXT) filed to raise $11 million.

Energy SPAC Bluescape Opportunities Acquisition (BOAC) filed to raise $700 million. Tech SPAC Reinvent Technology Partners (RTPU) filed to raise $600 million. TPG’s two SPACs TPG Pace Tech Opportunities (PACE.U) and TPG Pace Beneficial Finance (TPGY.U) filed to raise $450 million and $350 million, respectively. Private equity firm’s SPAC Peridot Acquisition (PDAC.U), media SPAC Falcon Capital Acquisition (FCACU), and renewable energy SPAC ArcLight Clean Transition (ACTCU) all filed to raise $300 million. ACON Investments’ SPAC ACON S2 Acquisition (STWOU) filed to raise $250 million. Luxury brand SPAC Aspirational Consumer Lifestyle Corp. (ASCL.RC) and Oaktree’s Oaktree Acquisition II (OACBU) both filed to raise $225 million. Healthcare SPAC Blue Water Acquisition (BLUWU) filed to raise $50 million.

25 Filings During the Week of August 31st, 2020





ArcLight Clean Transition




Blank check company formed by ArcLight Capital Partners targeting a renewable energy business.

Aspirational Consumer



Credit Suisse

Blank check company formed by executives at LVMH and L Catterton targeting a lifestyle business.

Graybug Vision


Health Care

SVB Leerink

Phase 2 biotech developing transformative medicines for ocular diseases.

Mission Produce


Consumer Staples


Leading supplier of fresh avocados.



Health Care


Danish late-stage biotech developing protein therapies for rare neurodegenerative diseases.

Peridot Acquisition




Blank check company formed by Carnelian targeting business with Mitigation and Adaptation principles.

PMV Pharmaceuticals


Health Care


Early stage biotech developing targeted therapies for cancer.

Prelude Therapeutics


Health Care

Morgan Stanley

Phase 1 biotech developing small molecule therapies for cancer.



Health Care


Makes minimally invasive medical devices for emphysema.

Sancai Holding Group


Real Estate

Univest Securities

Real estate holding company in China.

TPG Pace Beneficial Fin.



Deutsche Bank

Blank check company formed by TPG Pace Group targeting a business with a strong ESG profile.

TPG Pace Tech



Deutsche Bank

Blank check company formed by TPG Pace Group targeting the tech industry.

VIA optronics




German provider of sunlight readable, ultrathin display and touch solutions.

Blue Water Acquisition




Blank check company formed by an industry veteran targeting a healthcare business.

Falcon Capital Acq.




Blank check company formed by Ariliam Group and Eagle Equity Partners targeting a media business.

Green Grass



Provides specialty farming and agriculture services in China.

Lixte Biotechnology


Health Care

WestPark Capital

Phase 2 biotech using biomarker technology to develop protein inhibitors for cancer.

Bluescape Opp. Acq.




Blank check company formed by Bluescape Energy Partners targeting the energy and industrial sectors.

Taysha Gene Therapies


Health Care


Early stage biotech developing AAV-based gene therapies for CNS disorders.

Thryv Holdings



Provides marketing solutions and SaaS customer experience tools to SMBs.

ACON S2 Acquisition



Deutsche Bank

Blank check company formed by ACON Investments targeting a sustainable business.

Hygo Energy Transition



Morgan Stanley

Provides integrated downstream liquefied natural gas solutions in Brazil.

Laird Superfood


Consumer Staples


Manufactures plant-based packaged beverage products.

Oaktree Acquisition II



Deutsche Bank

Second blank check company led by the head of Oaktree Capital’s Value Equities group.

Reinvent Tech Partners



Morgan Stanley

Blank check company formed by LinkedIn co-founder Reid Hoffman and Zynga founder Mark Pincus targeting the tech sector.

IPO Market Snapshot

The Renaissance IPO Indices are market cap weighted baskets of newly public companies. As of 9/3/20, the Renaissance IPO Index was up 54.8% year-to-date, while the S&P 500 was up 6.9%. Renaissance Capital’s IPO ETF (NYSEARCA:IPO) tracks the index, and top ETF holdings include Zoom Video (NASDAQ:ZM) and Uber (NYSE:UBER). The Renaissance International IPO Index was up 38.6% year-to-date, while the ACWX was down 4.2%. Renaissance Capital’s International IPO ETF (NYSEARCA:IPOS) tracks the index, and top ETF holdings include Xiaomi and Meituan-Dianping.

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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.

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S&P 500 Weekly Update: The Pause Is Here And The Talk Of A ‘Market Crash’ Is Everywhere

“Drunkenness is not romantic; it’s a form of temporary insanity. And hangovers are the body’s way of asking, ‘What were you thinking?” ― Susan J. Anderson

It has taken a while but even the hardcore skeptics now realize it wasn’t a summer season where we “Sell in May and go away”. The month of August is in the books, The gain of 7% made it the fifth straight month of gains for the S&P 500. The June, July, and August summer months saw the S&P gain 15%.

The Dow and the Nasdaq 100 did even better for the month with gains of 7.7% and 10.9%, respectively. The tech-heavy Nasdaq 100 has been the biggest winner by far across global index ETFs. It’s up 39.2% year-to-date and 73.2% since the March 23rd low made after the COVID Crash.

Since the beginning of the rally off the lows the message remained the same;

“This Is A ‘Market Of Stocks’ That Is Offering Opportunity.

While everything is up off the March lows, there is a wide performance disparity on a year-to-date basis across sectors, size, and themes like value and growth. Large-cap ETFs are now up solidly on the year, while small-cap ETFs are still in the red. Mid-cap value, small-cap value, and the Dow Jones Dividend ETF are all still down 15%+ on the year.

Looking at sectors, we saw Technology, Consumer Discretionary, Industrials , and Communication Services gain 8%+ in August, while Utilities and Energy both declined during the month. Year-to-date, Technology is up 35.9% while Energy is down 38.4%.

Of course, that was yesterday and investors want to know what tomorrow brings. Well, I can’t help anyone with that forecast and I doubt any reader will find someone that can tell us that with any conviction. What I do know is the MACRO view of both the fundamental and especially the technical backdrop will be used to form a strategy. We have all heard how market breadth has weakened. It’s THE issue analysts, technicians, and naysayers are talking about.

An investor has to come to the realization that at times these divergences between price and breadth ALWAYS appear. It is when it becomes an ongoing situation, where it continues to deteriorate that it then sends a signal and becomes a REAL issue to contend with. All during the rally, we experienced brief moments of divergence.

However, the facts are that NINE out of the eleven sectors that are tracked made new all-time highs at some point during the rally. Energy, Financials, are the only laggards. You can listen to the analysts that have it wrong and believe what you wish, but in my book that is broad participation. Up until very recently, the advance-decline line has marched in lockstep with the price action.

When I compare the price/breadth levels to the timeframe leading up to the 2000 crash, there are no such warnings signals now. Anyone one that tracked breadth and price action back then knows full well what REAL divergence looks like, and how LONG it plays out BEFORE prices slide and the trend changes.

Also, there are no trend lines in ANY of the major indices that are rolling over. Yes, that is still the case even with last week’s selling. Now some will take that information and go running off trumpeting that I believe the market will continue to go higher unabated, cause I’m just a simple perma bull. Knock yourself out.

The fact is any Savvy investor realizes the opposite is true. Of course, we know ALL indicators have to be monitored. As far as the general market I shared my view with the audience here for the last THREE weeks;

Any pause or a possible dip would be perfectly normal here.

A short-term give-back period can commence at any time, especially after new highs are forged.

A pullback to the very short-term support level can happen at any time.”

Lo and behold that is what happened this past week so there should be no surprise. The difference between my strategy and that of others is simple. I don’t guess when a pullback might occur. If an investor stayed invested for the last 5 months they are in the pilot’s seat, and there is little need for concern unless we get another black swan. If you weren’t in the equity market in the last 5 months, I’ll repeat the opening quote;

“What were you thinking?”

Now that a pullback in equities has started many will disagree now. That is their prerogative and they can pursue their strategy as they see fit. The fact that we already experienced one Black Swan here in 2020, says another one has a LOW probability of occurring. If an investor was able to navigate an unprecedented economic situation and come out the other side unscathed, that is impressive. So impressive that I pose the question;

“So what are you worried about?”

It is the walking dead that are out and about now uttering the word “rout” and “crash” that need to be concerned. This is the same crowd that had the story wrong in 2020. Unless they can somehow learn to follow ALL of the data there isn’t much that can help them now.

As August came to an end on Monday so did the S&P’s seven-day winning streak. A late-day reversal saw the index make a new intraday high only to post a loss of 0.2% for the day. Meanwhile “Growth” was in favor as the Nasdaq Composite rolled on to its 40th new high for the year. At the same time, we witnessed the worst breadth session since July 9 as only 19% of NYSE operating stocks advanced. Technology, Health Care, Utilities, and Consumer Discretionary finished higher on what was a “sloppy” trading day.

Turnaround Tuesday saw more highs for the S&P (#21) up 0.75% and the Nasdaq (#41) up 1.3%, with all of the other major indices participating. That was the best first trading day of September for the S&P 500 since 2010. The Dow 30 was up 0.60%, Transports gained 1.1%, and the Russell small caps rose 1% as well.

At the sector level Homebuilders (XHB), Retail (XRT), and Materials (XLB) were all up 2+%. Biotechs (IBB) fell by 1.9%. More money rotating behind the scenes. Market breadth was much improved as well.

By Wednesday it was apparent the market doesn’t care if the calendar says “September”. After the strongest first-day of September for the S&P 500 since 2010, global equities were in rally mode again today with Europe up nearly 2%. The rally continued with more highs for the S&P (#22) up 1.5% and the Nasdaq (#42) up 90%), with all of the other major indices participating. Dow 30 was up 1.5%, Transports gained 1.1%, and the Russell small caps rose 0.87%. The day’s winners were Utilities +3%, and Semiconductors up 2.8%, Communication Services, Real Estate, and Materials all up over 2% with Financials showing strength up 1.4%. Breadth was much improved across the board. Advancing Issues: 1798 / Declining Issues: 1202 — for a ratio of 1.5 to 1. New 52-Week Highs: 158 / New 52-Week Lows: 17.

It was apparent on Thursday that the typical start of the month equity allocations ended and the much-awaited pause entered the scene. The price action was ALL about the technical set-up. Markets were overbought. It wasn’t due to the upswing in virus cases around the globe, nor the stalled stimulus program negotiations, or the ongoing debate regarding when a vaccine may be available. It wasn’t due to the U.S China relationship. Pundits like to come up with a “reason” for the market action, sadly they hardly ever get it right, BUT it all sounds good.

The S&P gave back 3.5% with all sectors in the “red”. No surprise, Technology was hit the hardest. The Nasdaq composite closed with a loss of 5% and the Technology Sector ETF lost 6+%. Energy, Utilities, and Financials outperformed losing less than 2% on the day. More selling to close out the week ahead of a long holiday weekend saw the S&P shed another 0.80% on Friday. The index broke its five-week winning streak and is now 4.5% off the all-time high.

It was more of the same with high flying technology taking the brunt of the selling. The NASDAQ Composite losses grew to 6.2% in the two-day selloff and that is how much the index is off the high set on Wednesday.

Financials, Transports, Industrials, Materials all closed higher on the day as this short term money rotation trade is still in vogue.


Gene Seroka, executive director of the Port of Los Angeles, the largest U.S. gateway for seaborne container imports;

“August will more than likely be the best August in the history of the Port of Los Angeles. Vessel bookings for the coming weeks suggest September will be strong as well. Retailers are currently restocking and redeveloping their inventories at their distribution centers and on their store shelves.”

The chart below compares the TSA throughput levels to where they were a year ago and shows the year over year percentage change. Passenger traffic is still down 67% compared to a year ago, but yesterday’s level was the highest reading since late March and has been accelerating to the upside.

Source: Bespoke Investment Group

Q2 productivity was revised higher to a 10.1% pace of growth versus 7.3% in the preliminary report, and -0.3% in Q1. And Q2 unit labor costs were nudged down to a 9.0% growth rate from 12.2% initially and compares to Q1’s 9.6% rate of growth.

Dallas Fed manufacturing index jumped 11 points to 8.0 in August. That follows the 3.1 point improvement to -3.0 in July and the 43.1 point surge to -6.1 in June and the 24.8 point gain to -49.2 in May. The index has been on the rise since crashing to an all-time low of -74.0 in April. The region was devastated by the pandemic and the plunge in the oil industry. The employment component climbed to 10.6 from 3.1 after five months in contraction and an April nadir of 23.5. The workweek nearly doubled from July’s 5.8.

The seasonally adjusted IHS Markit final U.S. Manufacturing Purchasing Managers’ Index posted 53.1 in August, down slightly from the previously released ‘flash’ estimate of 53.6, but up from 50.9 at the start of the third quarter. The upturn in operating conditions was only the second in as many months, following the easing of coronavirus disease 2019 (COVID-19) restrictions and the reopening of large sections of the manufacturing sector. Overall growth was solid and the sharpest since January 2019.

Chris Williamson, Chief Business Economist at IHS Markit;

“The manufacturing upturn gained further ground in August, adding to indications that the third quarter should see a strong rebound in production from the steep decline suffered in the second quarter. “Encouragingly, new order inflows improved markedly, outpacing production to leave many companies struggling to produce enough goods to meet demand, often due to a lack of operating capacity. Backlogs of uncompleted work consequently rose at the fastest rate since the early months of 2019, encouraging increasing numbers of firms to take on more staff.”

“Key to the upturn was a jump in new export orders, which rose at the fastest rate for four years, reflecting improving demand in many foreign markets, and benefitting larger companies in particular. Disappointingly, new orders and export sales at smaller manufacturers continued to fall, highlighting an unbalanced recovery in favour of larger firms.”

The seasonally adjusted final IHS Markit U.S. Services PMI Business Activity Index registered 55.0 in August, up notably from 50.0 in July and slightly higher than the earlier ‘flash’ estimate of 54.8. The latest expansion was strong overall and the quickest since March 2019. Firms often stated that the upturn in output was due to greater client demand and the further reopening of businesses.

Chris Williamson, Chief Business Economist at IHS Markit;

“Surging inflows of new business helped propel service sector activity higher in August, with the sector growing at its fastest rate for almost one and a half years. Firms were often left struggling to meet demand and, despite taking on extra staff at a pace not seen for over six years, backlogs of uncompleted work accumulated at a rate exceeding anything recorded since 2009. The increase in backlogs of work bodes well for robust output growth to persist into September”

“Combined with the stronger picture emerging from manufacturing in August, the improved performance of the vast service sector adds to signs that the third quarter will see an impressive rebound in the economy from the collapse seen in the second quarter.”

“However, the survey also highlights how the rebound is very uneven and the recovery path remains highly uncertain. August’s growth was driven by financial and business services as well as tech firms, but consumer-facing sectors such as travel, tourism and recreation remained firmly in decline due to the need for ongoing social distancing.”

The Institute for Supply Management’s August reading on the manufacturing sector showed a third straight month of accelerating expansionary activity. The headline index rose to 56 compared to expectations of 54.8 and 54.2 in July. That is now the highest level of the index since November of 2018 when it read 58.8.

Breadth across each of the individual components of the report continues to be solid with just about every index higher month over month. The only two indices to fall were both for inventories. The index for Employment along with these indices for Business Inventories and Customer Inventories are also the only ones that remain in contraction as has been the case for the past few months. Employment has been on the rise over the past few months, so it’s not all bad though. Additionally, the declines in inventories may not necessarily be a bad thing as it coincides with strong demand and rising production, meaning strong demand is likely drawing on inventories rather than supply issues.

The U.S. Construction spending report revealed a lean 0.1% July gain, though the report modestly beat estimates thanks to upward revisions that left declines of -0.5%.in June, -1.3% in May, -3.4% in April and -0.3% in March. The July gain broke a four-month string of declines. The boosts were spread across all the major components except home improvements, which isn’t used for GDP calculations, so the data lift prospects for both Q2 and Q3 GDP.

Initial jobless claims dropped -130k to 881k in the week ended August 29 following the -93k drop to 1,011k in the August 22 week. The 4-week moving average declined to 991.75k after dipping to 1,069.25k previously. On a not seasonally adjusted basis, claims were 7.6k higher at 833.4k after falling -64k to 825.8k. Continuing claims declined tumbled -1,238k to 13,254k in the August 22 week. Continuing claims declined -267k to 14,492k in the August 15 week. The data were impacted by the change in the seasonal adjustment methodology, and likely by Hurricane Laura.

The Jobs report was stronger than suggested by the 1,371k payroll gain after -39k in downward revisions. Analysts saw a rise in the workweek to 34.6 hours from an already-elevated 34.5 in July, which allowed a big 1.2% August hours-worked rise.

Analysts also saw a 0.4% August rise in hourly earnings, after a downward July bump to 0.1% from 0.2%, which left a big 4.7% y/y gain. The household survey revealed a 3,756k civilian job surge and a 968k labor force gain, leaving a jobless rate plunged to 8.42% from 10.03%. The labor force participation rate improved to 61.7% from 61.4%. The payroll gain was partly lifted by a 344k rise in government jobs after -50k in downward revisions, which mostly reflected temporary Census hiring.

We saw a 1,027k private nonfarm payroll rise after 11k in upward revisions. Payrolls over the May-August period have now reclaimed 48% of the jobs lost in March and April, and the steep rebound extended through August. Yet, the slowing in the pace of private payroll growth, and the concentration of the joblessness in lower-paid workers, capture the labor market quagmire for those previously in the restaurant, airline, hotel, and entertainment industries.

Economists now expect August gains of 1.6% for industrial production, 0.9% for retail sales, and 0.8% for construction spending. Analysts expect a -2.6% personal income drop as analysts further reverse the April pop with CARES Act payments.

More evidence that the consumer is still plugging away. U.S. auto sales moved back across the 15 million seasonally annual “adjusted rate” when it was reported this week. That is the highest rate seen since the pandemic.

Source; Bespoke

As shown above, auto sales are still substantially below their prior trend and are bouncing back but surprisingly European sales have bounced back further. Auto’s and Housing are the precursors to a strong economy and the signals from them are nothing but positive.

Global Economy

The J.P.Morgan Global Manufacturing PMI, a composite index produced by J.P.Morgan and IHS Markit in association with ISM and IFPSM, rose to a 21-month high of 51.8 in August, from 50.6 in July and above the neutral 50.0 level for the second successive month. Of the 31 territories covered by the survey, 19 recorded PMI readings indicative of growth.

Olya Borichevska, Global Economist at J.P.Morgan;

“The recovery in the global manufacturing sector gathered further pace in August, with rates of expansion in output and new orders the steepest since mid-2018. The upturn should strengthen further in the short term if lockdowns and other restrictions in place to combat the COVID-19 pandemic are eased further as expected. Business optimism and the orders-to-inventory ratio also point to further near-term gains. The labour market remains in the doldrums and could face prolonged weakness as companies restructure in light of the current normal.”

The J.P.Morgan Global Composite Output Index, which is produced by J.P.Morgan and IHS Markit in association with ISM and IFPSM, rose to 52.4 in August, its highest level since March 2019. Expansions have been signaled in each of the past two months, following a five-month sequence of contraction. Output growth was registered in both the manufacturing and service sectors, hitting 28, and seven-month highs respectively. The steeper pace of expansion was again seen at manufacturers.

Olya Borichevska, Global Economist at J.P.Morgan;

“The recovery in global activity continued through August with the PMIs reflecting this. Manufacturing is faring better so far during the recovery, as a continued downturn in consumer services weighs on services activity as a whole despite a strong revival at financial service providers. The labour market continues to improve though more slowly than activity and on net remains depressed. Jobs may face renewed pressure later in the year as government support schemes fade and company restructuring programmes are implemented.”


The recovery of the euro area’s manufacturing sector from the severe constraints on economic activity related to fighting the global coronavirus disease (COVID-19) continued during August. Output and new orders both rose at marked rates and ensured that the IHS Markit Eurozone Manufacturing PMI remained above the 50.0 no-change level for a second successive month. The headline index posted 51.7 in August, unchanged on the earlier flash reading, and little-moved on July’s 51.8.

Chris Williamson, Chief Business Economist at IHS Markit;

“Eurozone factory output rose strongly again in August, providing further encouraging evidence that production will rebound sharply in the third quarter after the collapse seen at the height of the COVID19 pandemic in the second quarter. Business expectations for output in a year’s time also rose to the highest for over two years as prospects continued to brighten from the unprecedented gloom seen earlier in 2020.”

“Caution is warranted in assessing the likely production trend, however, as so far it would have been surprising to have seen anything other than a rebound in output and sentiment. Worryingly, order book growth cooled slightly in August, and there are indications that firms are bracing for a near-term weakening of demand.”

“Of note, a key theme of the latest survey is one of firms taking a cautious approach to costs and spending, notably in respect to investment and hiring, amid continued worries about the strength of future demand and uncertainty over the course of the pandemic. Producers of investment goods such as plant and machinery reported the weakest order book growth, and job losses remained amongst the most prevalent since the global financial crisis.”

“Whilst the drop in payroll numbers was led by Germany, France, Spain and Austria reported a reacceleration of job losses and a return to job cutting was seen in Ireland, sending worrying signals that many firms have become more concerned about the near-term outlook.”

“In short, manufacturing is currently being buoyed by a wave of pent up demand, but capacity is being scaled back. The next few months’ data will be all-important in assessing the sustainability of the upturn.”

After accounting for seasonal factors, the IHS Markit Eurozone PMI Composite Output Index fell to 51.9, down from 54.9 in the previous month. The index was, however, higher than the earlier flash reading (51.6) and represented moderate growth in economic activity.

Chris Williamson, Chief Business Economist at IHS Markit;

“Service sector companies across the eurozone saw growth of business activity grind almost to a halt in August, fueling worries that the post-lockdown rebound has started to fade amid ongoing social distancing restrictions linked to COVID-19.”

“The near-stalling needs to be viewed in the context of the strong expansion seen in July: business growth had surged to a near two-year high as economies opened up further from the severe COVID-19 lockdowns. However, the latest reading still sends a disappointing signal that the rebound has lost almost all momentum.”

“The deterioration was often linked to worries of resurgent COVID-19 infection rates, notably among consumer-facing companies and especially in Spain and Italy, where virus containment measures remained particularly strict.”

German factory orders rose 2.8% but missed forecasts that called for a 5% monthly gain. That follows the 28% rise off the bottom in the prior month.

The official NBS Manufacturing PMI for China stood at 51.0 in August 2020, little-changed from 51.1 in the previous month, and compared to market consensus of 51.2, pointing to the sixth straight month of increase in factory activity as the economy continued to recover from the COVID-19 shock. Output (53.5 vs 54.0 in July) and new orders (52.0 vs 51.7) continued to grow, while declines were seen in export sales (49.1 vs 48.4) and employment (49.4 vs 49.3). Also, the supplier’s’ delivery time was stable (at 50.4). Looking ahead, business sentiment strengthened (58.6 vs 57.8)

Non-manufacturing PMI in China was 55.2, expanding at its fastest pace since 2018. Both surveys now report positive outlooks for six consecutive months.

The headline seasonally adjusted Caixin China Purchasing Managers’ Index PMI, a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy, rose from 52.8 at the start of the third quarter to 53.1 in August. The reading was indicative of solid overall improvement in the health of the sector, and one that was the most marked since January 2011.

Dr. Wang Zhe, Senior Economist at Caixin Insight Group;

“The Caixin China General Manufacturing PMI stood at 53.1 in August, up from 52.8 the previous month, staying in expansionary territory for the fourth consecutive month. The index has now risen for four months in a row, reflecting that the manufacturing sector continued to recover from the impact of the pandemic, and that the momentum of the recovery remained strong.

The headline seasonally adjusted Caixin China Business Activity Index fell only fractionally from 54.1 in July to 54.0 in August, to signal a further solid increase in business activity midway through the third quarter. Although softening further from June’s near-decade high, the latest uptick extended the current sequence of growth to four months. The data, therefore, adds to signs that the sector continued to recover from the marked drops in activity earlier in the year following the COVID-19 outbreak.

The seasonally adjusted headline IHS Markit Hong Kong SAR Purchasing Managers Index fell from 44.5 in July to 44.0 in August and registered another marked deterioration in the health of the private sector. Further tightening of virus-fighting measures, including new limits on the size of public gatherings, dealt another blow to the private sector, with retail, entertainment, and food establishments hit particularly hard. Business activity shrank substantially during August, dropping at the fastest pace since the peak impact of the initial lockdown measures from February to April.

Bernard Aw, Principal Economist at IHS Markit;

“More stringent social distancing rules hit Hong Kong’s private sector economy further in August, according to the latest PMI survey data, with businesses in retail, entertainment and food particularly affected. “Business activity and new orders both fell at steeper rates, adding to concerns about the depth of the economic downturn during the third quarter.”

“Confidence in the year-ahead outlook remained negative as firms expressed worries over not just tighter COVID-19 measures, but also a renewed US-China trade war dispute, increasingly cautious consumer behaviour, and business insolvency. With unused capacity persisting across the private sector, the labour market is set to remain subdued in the coming months.”


The headline au Jibun Bank Japan Manufacturing Purchasing Managers’ Index PMI, a composite single-figure indicator of manufacturing performance, picked up from 45.2 in July to 47.2 in August. Although pointing to a solid decline in the health of the sector, the latest PMI figure was the highest since February. The index has now risen for the past three months, with the latest reading much higher than May’s 11-year low of 38.4, to signal that conditions had continued to move closer to stabilization.

Annabel Fiddes, Economics Associate Director at IHS Markit;

“The latest PMI data show that Japan’s manufacturing sector moved closer to stabilisation in August, as firms signalled weaker drops in output and orders. “The easing of restrictions related to COVID-19 around the world helped to soften falls in key metrics such as production and new work. However, the pandemic continued to limit the performance of the sector, according to panelists, with companies still trimming their inventories and staffing levels as firms waited for demand conditions to revive. “It is hoped that as economies around the world reopen and business operations normalise, this will feed through to firmer customer demand and a recovery of Japanese manufacturing activity in the months ahead.”

The seasonally adjusted Japan Services Business Activity Index posted 45.0 in August, down marginally from the reading of 45.4 in July and in line with that seen in June. The latest figure signaled a further reduction in activity, albeit one that was again much softer than during the worst of the current downturn, which stretches back to February.

Andrew Harker, Economics Director at IHS Markit;

“The COVID-19 pandemic continued to hang over the Japanese service sector in August, halting previous momentum towards recovery amid fragile customer demand and a considerable degree of uncertainty.”

“This uncertainty was evident in company predictions for output over the coming year, which on balance came out as broadly neutral. With little sign of a strong rebound and a lack of clarity as to how things will progress, caution was again evident with respect to hiring decisions.”

“Services saw output fall more quickly than manufacturing for the first time since May, suggesting that the sector is more impacted by the lingering effects of the pandemic on demand. Any return to growth will likely depend on confidence among companies and customers alike that the virus has been brought under control.”

At 52.0 in August, the headline seasonally adjusted IHS Markit India Manufacturing Purchasing Managers’ Index PMI rose from 46.0 in July and signaled an improvement in operating conditions across the manufacturing sector following four consecutive months of contraction.

Shreeya Patel, Economist at IHS Markit;

“August data highlighted positive developments in the health of the Indian manufacturing sector, signalling moves towards a recovery from the second quarter downturn. The pick-up in demand from domestic markets gave rise to upturns in production and input buying. “However, not all was positive in August, delivery times lengthened to another marked rate amid ongoing COVID-19 disruption. Meanwhile, employment continued to fall despite signs of capacity pressures, as firms struggled to find suitable workers. “The rate of input price inflation was solid, following four monthly declines in cost burdens. Firms, however, continued in their efforts to drive sales amid greater competitive pressure and reduced their selling prices further.”

The seasonally adjusted India Services Business Activity Index rose sharply from 34.2 in July to 41.8 in August, the highest since March, before the escalation of the global COVID-19 pandemic. Nevertheless, the latest reading, by coming in below the 50.0 neutral value again, indicated a continued decline in business activity.

Shreeya Patel, Economist at IHS Markit;

“August highlights another month of challenging operating conditions in the Indian services sector. Sustained periods of closure and ongoing lockdown restrictions in both domestic and foreign markets have weighed heavily on the health of the industry. Output and new work continue to fall at solid rates, while restrictions meant that firms were often unable to complete projects. Backlogs of work accumulated to the greatest extent in almost 15 years of data collection. That said, the survey showed signs of a potential recovery. Business sentiment was neutral after being negative in the previous three months and employment fell at the softest pace since March. Additionally, there were efforts to protect profit margins, firms raised their selling prices to pass on higher expenses to customers and recover lost revenues after a period of closure.

The headline PMI signaled a sixth consecutive monthly deterioration in the health of the ASEAN manufacturing sector during August. That said, the index rose from 46.5 in July to 49.0, and was indicative of a much slower rate decline that was only marginal overall, as the sector moved closer to stabilization.

Lewis Cooper, Economist at IHS Markit;

“The ASEAN manufacturing sector moved closer to stabilisation during August, as the headline figure gained a further two-and-a-half points to signal a further easing of the downturn. Factory production stabilised following six consecutive monthly declines, whilst the level of total new business fell at the softest rate since the current sequence of contraction began in March. “Exports remained a key drag however, with new export work declining markedly as ongoing lockdown measures continued to stifle foreign demand for ASEAN goods. “Overall, August data provided some tentative signs of a move towards stabilisation, with the latest readings for key indicators such as output and total new orders much higher than the nadir’s seen at the height of the pandemic in April and May. “Nonetheless, we are yet to see any concrete indications that the sector is recovering. Factories need to see a marked improvement in client demand and production volumes before the recovery can get underway.”

The seasonally adjusted IHS U.K. Markit/CIPS Purchasing Managers’ Index rose to a 30-month high of 55.2 in August, up from 53.3 in July but a tick below the earlier flash estimate of 55.3. The PMI has posted above its neutral 50.0 level for three consecutive months.

Rob Dobson, Director at IHS Markit;

“The recovery of the UK manufacturing sector gathered pace in August. Output expanded at the fastest rate in over six years as new work intakes rose to the greatest extent since November 2017, led by an upturn in domestic demand and signs of recovering exports. Business optimism also remained encouragingly robust and close to July’s recent peak. “However, companies report that the current bounce is mainly driven by the restarting of manufacturers’ operations and reopening of clients as COVID-19 restrictions continue to be relaxed. Backlogs of work fell at an increased rate, hinting at spare capacity, and the labour market remains worryingly weak, with job losses registered for the seventh straight month. The downturn in employment may have further to run as the government’s furlough scheme is phased out unless demand rises sharply. “Given the fragility of demand and uncertain outlook, both in terms of COVID-19 and Brexit, policymakers may struggle to prevent a ‘surge-then-slump’ scenario from developing.”


The headline seasonally adjusted IHS Markit Canada Manufacturing Purchasing Managers’ Index registered 55.1 in August, up from 52.9 in July, to signal the sharpest improvement in business conditions since August 2018.

Shreeya Patel, Economist at IHS Markit;

“Latest data highlighted a strong upturn in the Canadian manufacturing industry, continuing the recovery from the severe second quarter downturn. Production and order book volumes both expanded at the fastest pace in two years, driven by the reopening of client businesses and improvements in customer demand. “Rising workloads, and signs of capacity pressures emerging were good news for jobs. Employment increased at the fastest rate since the start of 2019. “That said, it was not all positive in August, delivery times lengthened at another marked rate amid ongoing COVID-19 disruption, while there were signs of building inflationary pressures.”

The headline seasonally adjusted IHS Markit Mexico Manufacturing PMI registered 41.3 in August, up from 40.4 in July. The latest reading signaled a marked deterioration in the health of the Mexican manufacturing sector, albeit one that was the softest for five months.

Eliot Kerr, Economist at IHS Markit;

“The latest PMI data for the Mexican manufacturing sector suggest that goods producers are still struggling amid the COVID-19 pandemic. Although production continued to trend towards stabilisation in August, the severity of this prolonged decline is a cause for concern, particularly as firms are still experiencing marked declines in new orders. “The ongoing demand weakness has translated into further job losses, which will only put more strain on economic conditions going forward. That view is aligned with firms’ expectations for a continued downturn over the next 12 months. Although sentiment improved again, on the whole, panellists expect activity to fall over the coming year, making large scale re-hiring unlikely in the short term.

The Political Scene

The White House and Speaker Pelosi are reportedly close to agreement on a “clean” government funding extension around September 30 without further fiscal relief measures, potentially removing a significant catalyst and lessening the chances of a comprehensive relief bill before the election. The “data” continues to chip away at the need for “trillions” in relief now and why it was more than likely not an “emergency” over a month ago. A reason why the markets continue to shrug off this impasse.

With the party nominating conventions behind us, all eyes turn to watch polling over the next several weeks to gauge any material shifts in the presidential race. As markets monitor fiscal negotiations, the first presidential debate of the fall campaign cycle will be another event to watch next month. President Trump and the Democratic nominee Biden will debate on September 29, a potentially significant moment for investors to gauge the direction of policy in 2021.

The 2020 Election is now less than 60 days away, and now that both parties have had their national conventions, the race is officially on, and a race it is shaping up to be. The first graphic below is from the site electionbettingodds.com and the second comes from the site PredictIt.

Both charts measure the odds that prediction markets are placing on Biden and Trump to win the election. After the protests and riots that began in late May and the COVID outbreak spread to the South, Biden overtook Trump in the betting markets, and at one point was ahead by more than 20 percentage points. That gap has narrowed in August, though. While Biden didn’t see the typical post-convention bounce, Trump has seen his odds steadily climb over the last two weeks to the point where the gap between the two candidates is the narrowest it has been since June. Biden is still ahead, but it’s now an even closer race.

Source: Bespoke Investment Group

Federal reserve 2.jpg

The Fed

According to the Federal Reserve’s latest “Beige Book” findings released this week, the U.S. economy expanded in August, but many parts of the country experienced slower growth amid lingering anxiety over the coronavirus. Continued uncertainty and volatility related to the pandemic, and its negative effect on consumer and business activity, was a theme echoed across the country.

The Fed noted many districts reported a slowing pace of growth in these areas, and total spending was still far below pre-pandemic levels. The Beige Book also said commercial construction decreased and commercial real estate remained in contraction, while residential construction was described as a bright spot, showing growth and resilience in many districts.

The report said employment increased overall, with gains in manufacturing cited most often, but some districts reported slowing job growth and increased hiring volatility. On the inflation front, the Fed said price pressures increased since the last Beige Book in July but remained modest.

The Yield Curve

A trading range under 1% for the 10-year Treasury note has been in place for quite some time. After making a run to the top of that range in June, then testing the lows again, the 10-year bounced off the bottom and closed trading at 0.72%, falling 0.02% for the week.

The 3-month/10-year Treasury curve inverted on May 23rd, 2019, and remained inverted until mid-October. The renewed flight to safety inverted the 3-month/10-year yield curve once again on February 18th, 2020, and that inversion ended on March 3rd. The 2/10 Treasury curve is not inverted today.

Source: U.S. Dept. Of The Treasury

The 2-10 spread was 30 basis points at the start of 2020; it stands at 58 basis points today.

Sentiment negative.jpg


Investor Sentiment is a mixed picture. While the declining put/call ratio and sentiment readings in the Investors Intelligence and NAAIM Exposure surveys suggest that active investors are bullish, other surveys like the weekly AAII survey, the latest Consumer Confidence Report, and strategist targets paint a different picture.

Typically, when the S&P 500 is at an all-time high, AAII’s reading on bullish sentiment has averaged a reading around 40%. But in recent weeks not even a third of respondents have been bullish. After rising for the past four consecutive weeks and despite more all-time highs in that time, bullish sentiment pulled back this week to 30.8% from 32% last week. While that remains at the upper end of the past several month’s ranges, it is very muted compared to where equities are trading, despite the late week selling.

Crude Oil

U.S. crude production fell by the most ever in a single week, 1.1 million barrels, due to shutdowns from the storms in the Gulf of Mexico. Production is now at similar levels to the start of 2018. In addition to seasonal tailwinds, that led to the largest crude inventory draw of the year; 10.66 million barrels compared to the prior low of 10.61 in mid-July.

Imports were also down dramatically (by over 1 mm bbl/day) to the lowest level since February of 1992 which led the deficit to come in at its third narrowest reading on record behind the final week of December’s –1.89 and May 8th’s –1.86 mm bbls/day deficits.

The price of WTI rose above the resistance level of $42.50 for a couple of weeks but given this week’s price action that may be now viewed as a false breakout. Friday’s close at $39.56 was down $3.44 from the prior week’s closing price.

The Technical Picture

We have been here before, volatility picks up and the pullback seemingly takes place in a matter of hours. Welcome to the world of ETF’s and algorithmic trading that exponentially exacerbate market moves.

We got our “check back” to first support as the S&P traded to that level, then below the 20-day moving average. To show how strong this rally has been, that was the first close below that trend line since June 29th. Swift and violent but for the moment the pullback is contained at 4.5%.

From here it is a matter of testing the lower bounds of Friday’s trading range, then see if the index stabilizes at these levels. As the week closed out there is little to no change in the short term view.

No need to guess what may occur; instead, it will be important to concentrate on the short-term pivots that are meaningful. However, the Long Term view, the view from 30,000 feet, is the only way to make successful decisions. These details are available in my daily updates to subscribers.

Short term views are presented to give market participants a feel for the current situation. It should be noted that strategic investment decisions should NOT be based on any short term view. These views contain a lot of noise and will lead an investor into whipsaw action that tends to detract from the overall performance.

August is over and investors start another month and I have adopted a “So What?” attitude. Analysts are out and about now reminding investors that September can be a cruel month. They say the VIX is showing signs of life meaning volatility is about to re-emerge. Everyone is reminded that speculators are pouring into “call options” and the “RobinHood” traders are controlling the market action.

Stocks are overvalued. It’s been repeated for five months now so it’s a known fact that a correction is “overdue”. The complaint was the market is at highs, and no one is reacting to the fact of how bad “Main Street” is doing. Everything is out of sorts, there is no reality, routs, and crashes are back in the news. Then a pause and swift selling spree confirm everything that has been said in April, May, June July, and August.

I say “so what?”. Yes, that’s correct. Investors have circled and marked this tree before. After rallies, there are periods of “give back”, that is not earth-shattering news. The problem is for those that kept stating their BEAR case, it was some 55% ago for the S&P and 70+% for the Nasdaq. The VIX is a concern at 30+. So what?, the VIX was 80 in March. September begins on a Bullish note then the winds change. In two trading days, we witness a mini baby boom. Geniuses were born and they are everywhere. Their first words aren’t “mama” or “papa”, instead they say “I told you so”.

I say so what? and that is very easy to keep repeating because anyone that has followed the advice to stay invested since April while we were told to expect more new market lows, is in the pilot’s seat. The newborns that emerged this week are the folks that have all the issues now. I’m not sure what they do, besides pat themselves on the back because they feel good about a 4.5% pullback in stocks. Given the five straight months of gains that could easily morph into a full blow correction. If anyone wants to guess that is going to be the case, be my guest.

Somehow the 55%+ rally is forgotten. Psychologists will tell you that the human mind will do that. It will not allow an individual to relive a painful moment and for some this rally was torture. The strategy to watch ALL of the data wasn’t followed, and that remains the takeaway today. Every day the naysayers sang the same tune. Oh, there are so many still unemployed, there is a lot of pain on “Main Street”. One would think an investor can add two plus two and come up with the right answer. I’m not so sure anymore, emotion is clouding their judgment. Sure there is pain, but what is also true is the economy was completely shut down. That seems to have been forgotten as well.

It’s not about how many consumers are still far from “normal”, it’s about the rate of change and that is what the stock market is marching to. Finally, where was it written that after shutting down the economy and watching 30+ million hit the unemployment lines that all would be back to work in short order? Add in the constant bombardment by the “virus” hawks that we were on the “edge”, the self-imposed roadblocks that continue to impede the recovery, and it is a flat out miracle that the unemployment and economic picture looks as good as it does today.

The S&P ran to new highs and so did the Nasdaq and the folks that realize how the market “works” didn’t miss the “message”. Identifying the “Haves” and “Have Nots” in this “Market of stocks” has been the winning strategy. There are companies raising guidance. They have a very clear picture of what their economy looks like.

Investors have a choice, and it’s always the same. Watch all of the data and listen to the market’s message or listen to the noise.

How you manage your portfolio that fits your needs is up to you. My strategy remains the same, and it’s based on what matters.

The watchwords in the last few weeks for members of the Savvy Investor’s marketplace service have been;

Know Yourself, Know your plan.”

Do NOT allow yourself to get “stretched.”

Last weekend members were told;

“A pullback to short-term support can happen at any time”.

This past week it was a reminder to NOT get GREEDY.

Before you can invest you need to know how to read the market, you need to know how the market “works”.

There is never a better time than right now to join The Savvy Investor service that has made the right calls in a very difficult year for investors. 

Disclosure: I am/we are long EVERY STOCK/ETF IN THE SAVVY PLAYBOOK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: My portfolios are ALL positioned to take advantage of the bull market with NO hedges in place.
This article contains my views of the equity market, it reflects the strategy and positioning that is comfortable for me.

IT IS NOT A BUY AND HOLD STRATEGY. Of course, it is not suited for everyone, as each individual situation is unique.

Hopefully, it sparks ideas, adds some common sense to the intricate investing process, and makes investors feel calmer, putting them in control.

The opinions rendered here, are just that – opinions – and along with positions can change at any time.

As always I encourage readers to use common sense when it comes to managing any ideas that I decide to share with the community. Nowhere is it implied that any stock should be bought and put away until you die.

Periodic reviews are mandatory to adjust to changes in the macro backdrop that will take place over time. The goal of this article is to help you with your thought process based on the lessons I have learned over the last 35+ years. Although it would be nice, we can’t expect to capture each and every short-term move.

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Here’s why the stock market tumbled last week and what’s ahead for Wall Street

A bout of volatility returned to financial markets with a vengeance last week, disrupting a nearly uninterrupted climb to records for U.S. stock indexes and raising questions about the path for Wall Street headed into a hornet’s nest of challenges for investors.

Perhaps, the overarching question is, “What the heck just happened to equity markets in the 48 hours after the S&P 500 index

and Nasdaq Composite Index

on Wednesday notched their 22nd and 43rd closing records of 2020 respectively, and the Dow

scored its first finish above 29,000 since February, bringing it within 2% of its Feb. 12 all-time closing high?”

The bull perspective

From the bull’s perspective, not a lot has changed.

Bullish investors see the promise of lower interest rates for years to come and further injections of money by the Federal Reserve into various parts of the financial system, along with perhaps another fiscal stimulus from the government, as buttressing the market and offering a floor against future dramatic losses.

Optimists see the slump that the equity market experienced this week as a bump in the road to greater gains.

“Since the current bull market kicked off in March, there have only been two pullbacks of more than 5%. Recent bull markets have tended to have three or four setbacks over the first nine months,” wrote SunTrust Advisory chief market strategist Keith Lerner in a research note on Thursday — see chart:

Lerner also notes that the five-month winning streak for the S&P 500 since August, which has only occurred 27 times since 1950, is a good sign because it tends to imply that further returns are ahead.

So, investors may view this retreat as a natural corrective phase that removes some of the euphoric froth from equity valuations that had far exceeded the metrics that pragmatic investors use to assess an asset’s value compared against its peers.

MarketWatch’s William Watts wrote last Thursday, citing Dan Suzuki, deputy chief investment officer at Richard Bernstein Advisors, that technology stocks — particularly, a cohort that includes Facebook

and Google parent Alphabet


(or FANMAG) — had seen their valuations rise by dint of multiple expansion, or rapidly rising prices, while other segments of the market had seen earnings estimates fall out of whack with their prices, distorting the “P” portion of the commonly used priced-to-earnings metric, or P/E, used to gauge a stock’s worth.

“But these two groups of stocks have gotten more expensive for completely different reasons,” he noted. “FANMAG’s P/E has risen because their ‘P’ (prices) has gone up faster than their ‘E’ (earnings), while the P/E for the rest of the S&P 500 has expanded because ‘E’ has gone down much more than ‘P’,” wrote Suzuki.

Indeed during the period between the market’s March lows and early last week, investors have maintained a voracious appetite for technology-related stocks, and a group known as “stay-at-home companies”, including Zoom Video Communications Inc.
due to the belief that not only are they receiving a boost from the COVID-19 pandemic but also that they are best positioned to benefit when the economy eventually emerges from the recession.

A bounce off Friday’s lows, aided by moves into financials also was viewed as constructive for the broader market, heading into the three-day Labor Day weekend.

“The move higher was mostly led by financials, which came as a result of slightly higher rates rate on the long end of the curve, notably the 10 basis point move in the 10-year Treasury,” wrote Peter Essele, head of portfolio management for Commonwealth Financial Network, via email.

Yields in the 10-year Treasury

benchmark bond rose to 0.72%, marking the biggest single-day rise on Friday since May 18.

It’s unusual for yields to climb as stocks are falling as they did on Friday because investors usually turn to the perceived safety of government debt, driving prices higher and yields lower, in times of uncertainty. That didn’t occur on Friday and may be interpreted by some as signaling that at least fixed-income investors see the move in stocks as indicative of a temporary pullback rather than a more significant and lasting decline.

UBS Global Wealth Management’s chief Investment Officer Mark Haefele said that he viewed this week’s market drop as investors consolidating gains. “We view the latest selloff as a bout of profit-taking after a strong run,” he wrote.

“The S&P 500 enjoyed its strongest August in 34 years, gaining 7%, and added a further 2.3% in the first two days of September, to reach a fresh record high,” he wrote. “Stocks are still well-supported by a combination of Fed liquidity, attractive equity risk premiums, and a continuing recovery as economies reopen from the lockdowns.”

The bear’s perspective

From a bearish vantage point, the outlook for stocks looks more uncertain for investors. This uncertainty may have well laid the groundwork for substantial episodes of turbulence if not gut-wrenching drops in stocks, some experts say.

“The mini-tech selloff on Thursday has left a lot of scarring; it is not overly surprising that in New York equities trading, things were relatively muted into a long weekend,” wrote Stephen Innes, chief global markets strategist at AxiCorp, in a Friday research note.

September is a notoriously weak month for investors, and even if that weakness is somewhat moderated in an election year, October also has the hallmarks of a rough patch for Wall Street, with the Nov. 3 presidential election looming.

Chris Senyek, chief investment strategist at Wolfe Research, said the possibility of a resurgence of COVID-19 headed into the fall and winter also is cause to lighten up on stocks.

“Our sense is that a similar resurgence in infection rates is likely to occur in the United States this fall as children and college students returns to school and flu season begins,” analysts at Wolfe Research wrote on Friday.

Michael Kramer, founder of Mott Capital Markets, in a blog on Friday described the recent swings in the market as “insane” and said that it is difficult to gauge what’s ahead for the market, but he notes that an explosion in volumes related to the selloff could signal a change in the uptrend for stocks.

He noted that for the first time since April 3, the S&P 500 closed below its uptrend. “This is typically not something we want to see; it would indicate that momentum is likely shifting,” he wrote (see attached chart).

Of Friday’s paring of losses into the close, Kramer said: “The rally into the close was impressive, but it could have just as easily been on the heels of short-covering as it was on real buying.”

Part of the downturn occurred as two popular companies saw their shares drop after stock splits: Apple

and Tesla

Tesla has been among the highest of highfliers in recent months and viewed by some as a gauge of sentiment in the overall market. Its recent retreat is something bearish investors have pointed to as a signal of weakness in the market.

On top of that, Tesla wasn’t announced as a new entrant into the S&P 500 index late Friday, which may cast a pall over the stock that has lost about 20% from its peak.

The road ahead

Looking ahead, investors turn next to the Federal Reserve’s Sept. 15-16 policy meeting, which could be important in clarifying the length of the time interest rates could be held lower but also what, if any, new quantitative easing the central bank will implement.

Fed Chairman Jerome Powell in an interview with National Public Radio conducted Friday afternoon said that the 1.4 million jobs added to the labor market in August and an unemployment rate falling to 8.4% from 10.2% as a good sign of progress in the economy.

But he did emphasize that progress is going to be slow: “We do think it will get harder from here,” Powell said.

Doubts that the government will soon provide a fresh round of fiscal stimulus for out-of-work Americans has put some pressure on the Fed to do more to dull the impact on the economy from disruptions caused by the pandemic.

The Fed’s role may be the most important feature of whether the stock market is able to continue to make progress higher. As it stands now, there are few alternatives to stocks, with long-dated government bonds yielding around 1% or less.

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The Trade War And A Changing Market For Soybeans

By Evan Peterson

As the 2020/21 USDA marketing year begins for U.S. soybeans, exports of the commodity appear to be entering positive territory. The USDA reported that on August 26, China purchased 400,000 metric tons of U.S. soybeans. That’s one reason the agency now forecasts U.S. soybean exports to rise $4.2 billion in fiscal year 2021.

This follows the start of the phase one trade deal between the United States and China in early 2020. However, up to this point, the trade tension that began in 2018 between the countries had disrupted some of the price relationships between the United States and Brazil, the world’s other major soybean producer.

“Incredible growth from China led to a big increase in demand for grains and oilseeds,” Fred Seamon, Executive Director of Agricultural Research and Product Development at CME Group says in the roundtable discussion above. “Brazil was able to meet that demand because they had a lot of new land that they could put into production. So the price relationship between Brazil and the U.S. became really important, especially in soybeans.”

China bought 10.5 million metric tons of soybeans from Brazil in June, a record. In the same month, U.S. soybean exports to China fell by 56% from the previous year. In recent years, Brazil has surpassed the United States both in soybean production and share of global soybean exports.

China consumes more than 100 million metric tons of soybeans each year, while total world consumption is expected to be about 370 mmt for the 2020/21 crop year.

“Soybeans are a major important component within the Chinese consumer price index,” says Jack Bouroudjian, chief economist and co-founder of UCX Tech. “So it’s imperative, especially for the Chinese central committee to keep the price of soybeans stable. So their supply chains are going to be absolutely vital over these next few years.”

A falling dollar could help continued U.S. competitiveness in the soybean market, according to Joe Vaclavik, founder and president of Standard Grain.

However, Seamon says that though the dollar has weakened in 2020, it remains “relatively strong” versus the currencies of other major agricultural producers like Brazil, Argentina and Ukraine. “As long as that continues, that will encourage farmers in those countries to continue to increase production,” says Seamon.

The currency picture could also affect commodity prices if the Federal Reserve continues the quantitative easing policy it enacted in response to the economic effects of COVID-19. There is an inverse relationship between the dollar and commodities, and Bouroudjian says the dollar could continue to get weaker, and a floor could be established under soybeans and other commodities.

Original Post

Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.

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Stock Market Volatility: Something To Live For Through The Election

The stock market has moved a lot since March, up and down. On Friday, the US stock markets took a market sell-off into a second day with substantial movements on both days. But this is not just a recent thing. Since March, the volatility of the stock market has ramped up from what was taking place over the past couple of years.

Yes, the times are different. Yes, radical uncertainty is everywhere. And this is not going to change before the presidential election is over. Whether or not that date in November 3rd or some other date following. And there is nothing really that the policy makers can do about it. Investors are just going to have to live with it.

Driving The Market

As mentioned, there are just so many uncertainties around besides the uncertainties surrounding the election and the inauguration of a president in January.

The uncertainties go from the pandemic itself, to the economic recovery or not, to the US/China trade relations, to the development of a vaccine. Things are going to change daily and markets are going to move daily.

Overall, the US stock markets continue to perform toward the upside. Yesterday, the NASDAQ recorded only the third “down” day out of the past 14 days. Every “up” day was a new historical high.

For the S&P 500 stock index, yesterday was only the fourth “down” day out of the past 13 days, and every “up” day was a new historical high.

The “market” seems to be under the influence of the Federal Reserve System, and given the Fed’s new approach to inflation targeting, investors seem to think that this will mean longer periods of monetary ease accompanied by longer periods of low interest rates.

Both of these is a positive for continued high stock prices. But the volatility in the marketplace has changed.

Take A Look At The Volatility Index

Let’s take a look at the volatility index. We can see from the chart that the VIX index of volatility begins to take off in the middle of February…February 20 to be exact. This is when the news of the spread of the coronavirus pandemic really took off. As they say, the rest is history.

A month later, on March 16, the VIX index hit its peak of 82.69. The stock market hit its low right about then and then recovered to where it stands today.

The current level for the VIX index is in the upper 20s, a value more than twice what it was before the steep rise in February and March.

This is something that investors are going to have to live with through the end of the year…at least.

Programmed Volatility

There is another issue at work in this present environment. Algorithmic models that automatically set in motion trades tend to make the volatility even more extreme.

This is described in the Financial Times. As technology takes over Wall Street, the use of these models not only produces very good results, but also makes the outcomes more extreme as they contribute to the volatility that exists.

A rise in the expectation of volatility will set off these models and, as happened on Thursday, will set off automatic selling. These are called momentum models.

And given that these models are built up upon market statistics, they are also biased to the more volatile part of the market, like the market in tech stocks. That is, when the selling begins, tech stocks will dominate the sales and, like yesterday, tend to dominate the market results.

Following on top of this, “nervous retail investors” who had bought heavily into the tech stocks rally now began selling “out of fear of seeing more large downward movers.”

This now is just a part of how the market works. And although market values were down substantially for the day, in the early afternoon, the major stock indexes were down by almost 40 percent more than where they ended up the day.


According to David Lefkowitz, head of Americas equities at UBS Global Wealth Management, the market selloff was driven “more by market technicals than any fundamental change for the outlook for corporate profits or the economy.”

And this is the way it is going to be. There is a lot that will be going on over the next two to three months, and with all the unknowns that investors are facing, swings like yesterday and today should be expected.

And with all the unknown unknowns that investors face, this market volatility could continue on into the new year.

Hold on to your hats!

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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