After the best August in decades, it looked like more of the same was in store for September. The first two trading days of the month were a continuation of August’s record-setting ways, with the S&P and Nasdaq continuing a heatwave of all-time highs on back-to-back days.
Then Thursday and Friday gave us a reality check on how quickly the seasons can change. The three major indices fell their most since June:
Many are now concerned about volatility, but as we have been mentioning over the past several weeks, we expected the markets to get bumpy in August and September. These are historically the worst performing months of the year. August bucked that trend, but expecting September to do the same is exceptionally optimistic.
Some perspective on last week’s selloff should provide some solace. Because the markets were down on lighter volume and not heavy selling on heavy volume, a lot of this fluctuation adds up to profit-taking and not panic selling.
A good portion of this profit taking was within the tech sector. Year to date, technology stocks have fared far better than most parts of the economy. Due to this success, a lot of money has flowed into this sector. As money flows in and all of those dollars are chasing the same types of stocks, valuations can get lofty. Then, with any sign of trouble in the markets, this “hot” money can pour out of the markets just as quickly as it came in.
The silver lining is that the money isn’t leaving the market; it’s simply shifting from one pocket to another. Because we own many high-quality companies, we believe that we will benefit from this rotation over the next few months, especially as we head into the November elections.
Market dips are often great opportunities to buy more shares, either through dollar cost averaging or getting some cash off the sidelines into the markets. We expect the markets to pick back up during the second half of September.
Analyzing data going all the way back to 1928, there were only 22 times when the S&P gained 0.50% or more on the first trading day of September. The average monthly gain during these Septembers was a 0.54%. September 1, 2020 saw a .75% gain in the market. There is still plenty of month left to maintain this historic average.
We know it’s easy to find reasons to worry about what the future holds for the economy and market, especially when no one on this earth really knows what tomorrow looks like.
But don’t forget the reminder in Matthew 6:34:
Therefore, do not worry about tomorrow, for tomorrow will worry about itself. Each day has enough trouble of its own.
Few believers in the US economy and the stock market, as a whole, ever like seeing a downturn, but if we use this time to pause and reflect on the long-term opportunities that such dips provide, we can rest assured that today’s cold front will, eventually, be followed up by a warming trend. And when things heat up, we’ll be ready to help capture those opportunities and keep you informed about how your long-term perspective has paid off.
Sources: Yahoo Finance, Reuters.com, and JP Morgan Market Insights
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