Despite a September slump, the S&P 500 and NASDAQ wrapped up the third quarter with gains of 8.47% and 11%, respectively.

September headwinds are common enough that the S&P 500’s descent from its September 2 all-time peak feels familiar amid an otherwise historic year. Despite this “September effect,” many economic indicators are brightening, suggesting a recovery that has slowed, not turned.

As the S&P 500 had advanced 50% in a 125-day period, a loss of upward momentum didn’t surprise Chief Investment Officer Larry Adam. “Valuations rose to the highest level since 2001,” he explained, “and technical indicators suggested that the market had reached stretched levels.”

Technology, the highest-flying sector of the COVID-19 era, took one of the largest hits during September. But burdened by the resurgence of COVID-19 in Europe and the lack of another U.S. stimulus package, the downward movement spread across the market.

Unquestionably, the tale of two markets and the “K-shaped recovery” continues. As Adam mentioned previously, some parts of the economy will flourish while others struggle.

Housing has been a bright spot during the pandemic. Federal Reserve leaders have indicated that near-zero interest rates may persist through 2023, and perhaps longer, boosting home sales to levels last seen around 2006. This homebuying surge may also be impacted by Americans looking to better align their home workspaces with their companies’ more flexible views on telecommuting.

Meanwhile, political pressures – and the urging of Federal Reserve Chairman Jerome Powell – continue to push for Congress and the White House to find a deal on fiscal stimulus.

Volatile conditions aren’t likely to change very soon. However, there will be opportunities for market improvement this month and in the months to come. Earnings season starts in October, which should give the technology sector a chance to express its foundational strength. And though it is not uncommon to see volatility leading up to the election, once the issue is settled, investors usually make a quick return to form.

Here at the end of the quarter, we can clearly see the gains made by the mainstream indices. The S&P 500 gained 8.47% of value and the NASDAQ saw an 11% rise since the June 30 closing bell, despite the September slump.

 

12/31/19 Close

9/30/20 Close

Change
Year to Date

% Gain/Loss
Year to Date

DJIA

28,538.44

27,781.70

-756.74

-2.65%

NASDAQ

8,972.61

11,167.51

+2,194.90

+24.46%

S&P 500

3,230.78

3,363.00

+132.22

+4.09%

MSCI EAFE

2,036.96

1,867.88

-169.08

-8.30%

Russell 2000

1,668.47

1,507.69

-160.78

-9.64%

Bloomberg Barclays
U.S. Aggregate Bond Index

2,225.00

2,379.64

+154.64

+6.95%

Performance reflects price returns as of market close on Sept. 31, 2020, except for the MSCI EAFE and Bloomberg Barclays Aggregate Bond, which reflect the Sept. 29 closing values.

Analysts are looking at these key factors, both here and abroad.