While September produced the first monthly losses for equity indexes since March’s COVID-induced selloff, the third quarter was largely profitable for stocks. The S&P 500 index, which tracks the performance of the 500 largest US stocks, gained +8.9% in the third quarter to move back into positive territory on the year (+5.6% YTD). Overseas equities gained +6.2% in Q3 per the MSCI ACWI ex-US index, which is still down -5.4% YTD. Elsewhere, the Barclays US Aggregate Bond Index churned out another positive quarter, gaining +0.6% in Q3 for a full-year gain of +7.0%. Gold prices consolidated after reaching an all-time high of $2,075/oz in August, though the metal was still up +6.3% on the quarter for a YTD gain of 24.4%.
As investor anxieties shift from the ongoing COVID-19 recovery to the upcoming US presidential election in November, Archetype looks through the punditry to our data-driven Three Dials investment framework. Below is a summary of where each of our primary indicators stands through the end of the third quarter, all of which were unchanged over the prior month:
The S&P suffered a brief 10% correction in September before rallying into quarter-end to recover a key support level. While investor sentiment has waned with the pause in the market rally, technicals are strong enough that our Momentum Dial remains in a “Positive” position through the end of the quarter.
We have seen continued improvement in key areas like unemployment, where weekly claims have dropped from 1.4 million at the end of Q2 to around 800 thousand. However, the pace of recovery has slowed in housing and manufacturing orders, suggesting that the initial post-COVID economic recovery may be losing steam. With Congress still struggling to come to an agreement on additional stimulus for the roughly 12 million unemployed Americans, our Fundamental Dial remains in a “Negative” position.
September’s selloff was likely tied to jitters over an overheated stock market, particularly among the top-heavy tech sector, where performance has dwarfed the broad market by 23% year-to-date. Elevated prices against a rising risk backdrop has our Valuation Dial continuing to show a “Negative” reading.
On balance, our Three Dials composite has us slightly underweight risk assets heading into the final quarter of the year. We feel our portfolios are well-positioned to weather increased volatility heading into year-end while offering sufficient liquidity to take advantage of opportunities as they arise.
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Sources:
https://www.kitco.com/gold-price-today-usa/
https://www.aaii.com/sentimentsurvey?
https://fred.stlouisfed.org/series/ICSA
https://www.conference-board.org/data/bcicountry.cfm?cid=1
https://www.washingtonpost.com/us-policy/2020/09/30/congress-white-house-economic-stimulus/