Weekly Investment Newsletter (SITREP) – September 21, 2020

“Was it something I said?” had to be on the mind of Fed Chairman Jerome Powell after his speech last Wednesday. U.S. markets had enjoyed a two and a half day bounce higher before the Fed chairman delivered his comments after a two-day meeting with the Federal Open Market Committee. During the speech, markets turned decidedly lower and continued to fall finishing the week. The week resulted in modestly lower levels for most of the large cap indexes and volatility increased substantially.


Overall, U.S. equities finished the week mixed with merger news and renewed COVID-19 vaccine optimism offsetting worries that the Federal Reserve’s monetary policy was becoming less effective in supporting the recovery.  The Dow Jones Industrial Average ended the week down just 8 points to 27,657.  The technology-heavy NASDAQ Composite fell a steeper -0.6% to 10,793.  By market cap, the large cap S&P 500 declined -0.6%, while the mid cap S&P 400 and small cap Russell 2000 gained 0.6% and 2.6%, respectively.

Source: J.P. Morgan Asset Management, Weekly Market Recap, 9/21/20


Six of eleven sectors traded better than the S&P 500 Index last week, but they were not the traditional winners we have seen in 2020. Energy stocks closed nearly 3% higher with industrials and materials stocks close behind. Small companies were winners last week (for a change!) as large company stocks took a breather. One week does not change much for the year-to-date returns as large cap growth stocks maintain a healthy lead over all other asset classes for 2020. Broad index strategies continue to struggle in a year that has seen massive dispersion between index components.

Source: J.P. Morgan Asset Management, Weekly Market Recap, 9/21/20


Our market indicators finished the week near where they began – the short-term indicator remains in the negative position. A negative short-term indicator encourages caution for investing new money into a market that is experiencing heightened volatility. The long-term indicator remains constructively positive since the market lows in March helping us to see expanding strength in demand for U.S. stocks. The Balance of Strength signal is currently positive measuring the demand for cash as an investment alternative to other equity investment classes. You can learn more about our market indicators by watching our monthly “Portfolio Construction” webinar (link here).

Both the S&P 500 and NASDAQ have experienced three straight weeks of negative returns. While we would not compare the magnitude of negative returns to the March swoon, this three-week skein is the longest downward move in nearly a year. Technical analysts worry as both indexes closed at “lower lows” and below their respective 50-day moving averages.1


Interestingly, the move lower in U.S. stocks has not been met with selling in Europe or Asia; non-U.S. equities have outperformed over the past three weeks. Additionally, a sign of trouble for U.S. stocks will often be confirmed by strong selling in corporate bonds, especially bonds below investment grade (read: junk bonds). In this case, the corporate bond market has not seen significant selling pressure either.2

Source: Bespoke Investment Group, The Bespoke Report, 9/18/20


So far this market correction has been more typical as stocks with higher valuations (growth stocks) have fallen further than traditional value stocks (stocks with lower P/E ratios). The Russell 1000 Growth Index (large cap growth) is down close to 9% for September while the Russell 1000 Value Index (large cap value) is down less than 2%. The portfolio skewed towards growth has enjoyed one of the longest periods of outperformance on record at eleven months.3 It is too early to determine if this market is signaling a major rotation from growth to value, but we will monitor closely in case changes need to be made in portfolios.

Source: Bespoke Investment Group, The Bespoke Report, 9/18/20


Last week’s letter focused on the U.S. economy as we try to discern if this is the fastest recovery from recession ever. Economic releases last week continue to show signs of growth forthcoming.4 Unemployment remains the top concern for the Federal Reserve; enough of a concern that they are willing to change their long-term inflation targets to accommodate more inflation with the hope of recovering employment targets.


Investors remain concerned that inflation will rise faster than the Fed has budgeted. Recent polls from the University of Michigan confirm that participants believe inflation will surge past 2.7% in the coming twelve months. It is worth noting that neither of the polls below have been BELOW 2% over the last ten years while actual inflation has been significantly below 2%.5 It is fair to say that consumers have consistently overestimated the government’s official measures of inflation. Current measures of inflation show increases of 1.7% year over year.

Source: Bespoke Investment Group, The Bespoke Report, 9/18/20


What a difference a quarter makes! The second quarter earnings season was marked with mystery as a record number of companies provided little or no guidance for future earnings. Thus, analysts reduced their expectations dramatically but companies delivered better than analyst expectations. Granted, overall earnings results were more than any quarter in the last ten years. U.S. companies have been much more forthcoming on what to expect for third quarter earnings.


Analysts have adjusted their expectations accordingly and we are anticipating a 20%-plus increase in quarter-over-quarter earnings. Analysts have further adjusted their “buy” ratings on stocks according to those expectations. Nearly 53% of all stocks in the S&P 500 have “buy” ratings while only 6.6% have “sell” ratings.6 Health care and energy stocks have the most endorsements from analysts going into the fourth quarter.

Source: Factset Insight, John Butters, 9/18/20


Interest rates showed little concern for the Federal Reserve meeting last week. The regularly scheduled meeting for the Fed produced little change in the actual text of the Fed statement. The stock market reacted to what many believe is an expectation for higher inflation given the Fed’s accommodation. The bond market wholeheartedly disagrees with the stock market according to the numbers. The 30-year Treasury rate would normally rise with economic growth or anticipated higher inflation. In this case, the 30-year Treasury “yawned” higher by 0.03% and remains nearly 1% lower than at the beginning of the year.

Source: J.P. Morgan Asset Management, Weekly Market Recap, 9/21/20


When thinking of the Forbes 400 list of wealthiest Americans, many would assume that most of the 400 are titans of Wall Street who make money hand over fist through astute investing.  But research shows that is not the case.  Mark Hulbert (marketwatch.com) analyzed the investment performance of the super-rich and found that not only did they not beat the benchmark S&P 500, they failed to match the common diversified 60/40 stock and bond portfolio as well.  The truth is, almost all the 400 made their money elsewhere and then treat their rather low risk investing to conserve and keep, rather than grow, their fortunes. We find this to be a commonality with retirees who built wealth in their working years and are more concerned with portfolio protection than beating the stock index every year.

If you would like to schedule time to discuss our process in greater detail, please call our office at (281)616-5935 or send an email to cameron.malott@engravewealth.com. We are continually grateful for the confidence you have placed in our team. We look forward to serving your family in the years to come!

Engrave Wealth Partners Investment Committee

Bill Day, CFP®, CIMA

Taylor Parker, CFP®

Greg Parker


  1. Bespoke Investment Group, The Bespoke Report, 9/11/20
  2. Bespoke Investment Group, The Bespoke Report, 9/11/20
  3. Federal Reserve Bank of Atlanta, frbatlanta.org, GDPNow Forecast, 9/10/20
  4. The St. Louis Fed FRED Economic Data, 8/28/20
  5. P. Morgan Asset Management, Weekly Market Recap, 9/14/20
  6. P. Morgan Asset Management, Weekly Market Recap, 9/14/20
  7. P. Morgan Asset Management, Weekly Market Recap, 9/14/20