NEW YORK, Aug.27 (Reuters) – A rally in which US stocks have doubled from post-pandemic lows is set to enter the worst month of the year for stocks as investors turn focus on a nationwide resurgence of COVID-19 and how quickly the Federal Reserve plans to back out of its easy money policies.
September was the worst month of the year for the S&P 500 (.SPX), with the benchmark falling 0.56% on average since 1945, according to Sam Stovall, chief investment strategist at CFRA. The S&P advanced only 45% of the time in September, the lowest rate of any month, according to CFRA data.
This time around, stocks have momentum on their side. The S&P 500 hit its 52nd year-end record on Friday and has gained 20% so far in 2021, after spending 287 calendar days without a decline of 5% or more.
This type of performance has signaled comparatively strong returns in the past. The index continued to post a median gain of 5.2% for the remainder of the year in years when it hit 30 or more new highs through August, according to data from LPL Financial. This compares to a median gain of 3.6% for all years, according to company data.
A speech by Fed Chairman Jerome Powell on Friday helped allay concerns that the central bank would withdraw too soon from the $ 120 billion in monthly government bond purchases that helped prop up the markets, pushing the S&P to new records. Read more
Still, signs of caution have mushroomed in some corners of the market, fueled in part by the increase in coronavirus cases across the country and uncertainty over how quickly the Fed will tighten monetary policy once it is closed. she will have started her reduction.
As concerns about the Delta variant loom, “continuing to question the rally due to seasonality makes sense,” said JJ Kinahan, chief market strategist at TD Ameritrade.
While the major indices are near new highs, many stocks have been left behind. Tuesday marked the first time in nearly seven years that the S&P 500 has hit a closing high as a 10-day total showed more shares on the New York Stock Exchange and Nasdaq hit lows of 52 weeks than 52 week highs, according to Willie Delwiche. , an investment strategist with market research firm All Star Charts.
Investors also reduced their leverage, with margin debt falling 4.3% to $ 844 billion in July even as the S&P rose more than 2%, according to data from BofA Global Research. The S&P 500 fell 71% of the time a year after peaking in margin debt, the bank’s analysis showed.
Hedge fund net leverage, meanwhile, stood at 50% at the start of the third quarter from 58% at the end of last year, according to a Goldman Sachs report.
While the market’s gains since the start of the year have been spectacular, investors have wondered how much juice is left in the rally. A Reuters poll this week showed strategists believe the S&P 500 is expected to end 2021 not far from its current level. Read more
A window into how the Delta variant has spread to the economy will come next Friday, with the release of the US jobs report for August, following recent low readings on consumer confidence and retail sales. The seven-day average of newly reported cases reached around 155,000, the highest in around seven months, according to Reuters data through Thursday.
“When I sift through the noise… that’s what the market is focusing on right now, outright,” said Jack Janasiewicz, portfolio manager at Natixis Investment Managers Solutions.
Still, there is plenty of evidence to support the view that stocks should continue to climb until the end of the year.
BofA Securities said corporate client buyouts last week hit their highest level since mid-March, a potential source of support for stocks. These were led by financials, which recorded their highest weekly buyouts since 2010, BofA wrote.
“Despite the tangible spike in the Covid variant, we believe the economy will continue to grow,” boosted by business and consumer spending, said Rick Rieder, BlackRock’s chief investment officer for global fixed income, in a note to investors on Friday.
Some investors remain prepared to jump on any drop caused by higher volatility in the weeks to come.
“If we see a pullback in September, I would definitely say to our customers, ‘take this as a buying opportunity,” Janasiewicz said.
Reporting by Lewis Krauskopf and Saqib Iqbal Ahmed in New York Additional reporting by Ira Iosebashvili in New York Editing by Ira Iosebashvili and Matthew Lewis
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