Date: September 29, 2020

Stocks Bounce Right on Schedule – Imagine That!

Last week on Wednesday and Friday, I changed my tune and starting looking for a rally after a full correction had taken place in the major stock market indices. I also wrote about the NASDAQ 100 retaking its leadership position. The bulls definitely reasserted themselves on Friday and Monday with back to back strong rallies. 85% of trading volume on Monday was in stocks that went up, a powerful sign of more to come over the intermediate-term. However, the 85% number was not sufficient to overcome the two upper 80% numbers on the downside during the decline.

Russell 2000, S&P 400 and NASDAQ 100 led the last two days while the Dow and S&P 500 trailed. While semis had two good days, the very bearish energy services and banking sectors rallied even more. It was good, though, that all of the defensive sectors trailed the rally lately. High yield bonds lagged and spreads from treasuries widened, meaning that there is more stress in the credit market. A little bit for everyone.

With month and quarter-end upon us, don’t be surprised to see a few portfolio games coming up. The bull should have more upside left. If the stock market is still super bullish, the decline is over and new highs in Q4 will be coming up. That scenario is plausible. However, I am not ready to jump on that bandwagon just yet. I still believe the more likely scenario is more upside followed by another decline to new lows in October.

Lastly, the first presidential debate is tonight and it should be very entertaining with lots of fireworks and gotchas. It will also very little on substance and lots of attacks. I don’t care what the market does tomorrow; it won’t be because of the debate, regardless of what the pundits and media say. The debate also will not impact the election. I know that everyone will point to the fact checkers, etc., but history has shown that it just doesn’t matter. And I personally believe that there much fewer undecided voters in 2020 than in recent elections. I wish we could just get it over with now and avoid the next five weeks!


Paul Schatz, President, Heritage Capital