Stocks, Seasonality, and Sentiment
Stocks continue to show strength, with the small cap Russell 2000 Index hitting new highs. The economy may be sending signs of a slowdown while we wait on COVID-19 vaccines. Seasonality is strong, and sentiment is frothy.
Stocks are off to a historic rise in November, but there are some cracks in the armor. Economic data is slowing, COVID-19 cases are spiking, and overall sentiment is quite frothy. What does it all mean as we move into a seasonally strong part of the year.
The US Treasury has requested that the Federal Reserve (Fed) return $455 billion in unused funds to be used for lending facilities. Fed Chair Jerome Powell made his opposition known, but it may not be as big a deal as the media makes it. For starters, the money will go to Congress to be appropriated, likely to help small businesses via the Paycheck Protection Program (PPP). Also, the Fed can ask for the funds again in the future, if the economy weakens.
Economy is slowing
Somewhat disappointing data from retail sales and the Leading Economic Index (LEI) suggest the economy is beginning to slow, although it is still growing. With various COVID-19 restrictions being enacted, some economic weakness or slowdown makes sense over the next few months until a vaccine is widely available.
Sentiment is worrisome
With stocks seeing a record run in November, one worry is that overall sentiment is getting frothy. An increase in optimism could open the door for some weakness or at least consolidation. From sentiment polls to fund flows and put/call ratios, we are seeing some warning signs that being bullish isn’t very lonely anymore.
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All index data is from FactSet.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
This Research material was prepared by LPL Financial, LLC.
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