Weekly Update

Signs of Life in the Broader Market


Published October 9, 2020


Over the past few days, we have seen the rally of the past couple of weeks gain some new followers.  Specifically, small and midcap stocks, long the laggards in the market, have seen the growth components of their indexes break out to new highs. Here is the midcap growth index breakout:

Small and midcap stocks break out to new highs

Similar moves have come from areas as disparate as Taiwan (reflecting semiconductor strength):

Taiwan index growth (reflecting semiconductor strength)

And Mexico (perhaps on reports hurricane Delta largely spared the nation’s primary tourist area):

Mexico index growth

And all coinciding with a break higher in interest rates:

Interest rates break higher

This is all indicative of optimism toward stronger economic growth ahead.

Market Update

Stocks kicked off the week with solid +1.8% gains as global markets rallied. U.S. Treasury yields jumped out of their two-month range as the service sector reported its fourth straight month of recovery. The leap in yield sent financial stocks higher, which propelled small and midcap indexes upward. Stocks gave back much of Monday’s gains after the President issued a surprising halt to the negotiations for a new stimulus package. Investors have been buying stocks, in part, on the assumption that a second stimulus package will provide economic support through year-end. Tuesday saw a -1.4% decline. The President softened his stance on the stimulus package in comments Wednesday, leading stocks to a +1.7% rebound. Recent polls suggesting a less contentious election outcome have also appeared to reduce risk in the market, per Wall Street Journal reports and options activity. The rebound continued Thursday with a +0.8% gain. A spinoff from IBM and an acquisition in the money management sector added further enthusiasm to the market. The S&P 500 delivered another +0.9% gain Friday as the Administration prepared a stimulus proposal and the Nasdaq showed renewed strength.

A strong week for stocks with the S&P 500 (SPY) adding +3.90%. The Nasdaq 100 (QQQ) lifted by +4.15%. Smallcap stocks (IWM) broke solidly out of their trading range with a +6.44% jump.

Warm wishes and until next week.