A quick summary
- The dip-buyers are back, but they are not as committed as before.
- The latest employment report was disappointing.
- Earnings are improving, but they're based on lowered expectations.
- Inflation is rising from a very low base.
- Big Tech is still leading but has lost a little horsepower.
- A cheap and effective Covid vaccine is not yet in sight.
10 Major Indices and How They Performed Over Time
The next three charts come from my new favorite market analytics provider StockRover. We start with 10 major indices, including a new one - the Nasdaq Veles Water Index. You are undoubtedly familiar with the other nine.
I sorted the list by YTD returns from best to worst. You can see that the Nasdaq is still the front runner this year, but the up-and-coming Water index isn't far behind. I also highlighted (in pale gold) the top performers for each time frame.
The index that caught my attention, other than the new Water index, is the FTSE 100. For those who aren't sure what the FTSE 100 is, here's a brief description from TheBalance.
"The FTSE Group (informally called the "footsie") is a joint venture between the Financial Times of London and the London Stock Exchange. The acronym FTSE stands for Financial Times and Stock Exchange and the group's indices comprise the most highly capitalized companies in the United Kingdom listed on the London Stock Exchange."
I like the FTSE 100 at these prices. Low valuations, medium-to-strong balance sheets, and lots of business opportunities as Brexit unfolds. In fact, I would consider a pairs trade where I went long FTSE 100 and short NASDAQ to capture the wide disparity in price and value.
Asset Class ETFs
The below table is sorted by September performance. Most of these ETFs have taken major hits during September. The best performer was VPL - the Vanguard FTSE Pacific Rim ETF.
The worst performer was Gold, which gave back 4.2% after a terrific multi-month runup.
The Eleven Sectors of the S&P 500 Index
Sorted by YTD returns, Tech is still the top sector in the U.S. market. And Energy remains at the bottom of this list. It makes sense to me that Tech continues to lead, because these companies are constantly adapting to the changing environment and finding new and innovative ways to serve their clients.
Energy, on the other hand, is weighed down by old legacy companies who cling to fossil fuels and are not as quick to embrace the renewable energy sources that are replacing oil and natural gas.
Final Thoughts
I think the decade ahead of us will come in with roughly a ~5% average annual total return. Is that enough to get you to where you need to be, according to your plan?
While the technicals are looking better with each passing week, the fundamentals are not. And while the employment picture seems to be improving, the economy as a whole is still in a deep hole that will probably take several quarters to climb out of.
My advice is to take advantage of this rally but be prepared for setbacks and more volatility going forward.