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Profit from the Pros By Kevin Matras Executive Vice President
Stocks Down For 3rd Week, Could Rebound Be Nearby?
Image: Shutterstock
Stocks closed lower on Friday and for the week, making it 3 weeks in a row of declines.
The pullback from early September's highs continued. As of Friday, only the Nasdaq has reached correction territory as they are down -10.5%. (A pullback of between -10% to -19.99% is called a correction.)
The S&P and the Dow are 'only' down by -5.0% and -7.3% respectively.
Pullbacks and even corrections, however, are common.
In fact, stocks usually pull back about -5% roughly 3-4 times per year. And corrections usually happen about once a year.
So we've all been thru these things time and time again. Just part of the market.
And given the market's spectacular run-up over the previous 6 months (the Nasdaq for example surged by more than 81%), a pullback or correction was bound to happen eventually. And that's what we're seeing.
The question of course is when is it going to stop?
The major indexes look to be putting in a bottom. And with an improving economy and expectations for unprecedented growth for the remainder of the year, not to mention near zero interest rates for the foreseeable future, there's ample reason to expect stocks to move sharply higher.
And then when a vaccine finally comes out, stocks could soar.
But the reports on Friday that the White House was going to ban downloads of the TikTok app on Sunday, and prevent U.S. companies from using WeChat for financial transactions, spooked the market a bit as investors worried what China might do in retaliation.
However, on Saturday, it was reported that the President supported the Oracle and Walmart deal with TikTok, in principle, and gave it his "blessing". And the ban on the TikTok app would be pushed into the future (at least until next week), as the deal is reviewed.
Then on Sunday, it was reported that a U.S. judge halted the ban on downloading WeChat's app, and prevented the Commerce Department from blocking financial transactions on the platform as well. The Commerce Department appears ready to fight this in court. But for now, that too becomes an issue for another day.
That should allow the market to breathe a sigh of relief.
In other news, you still have a degree of disappointment that Congress wasn't able to pass a 5th coronavirus relief/stimulus package. While the Administration's executive orders did help put $44 billion of supplemental unemployment benefits into people's hands, that will soon come to an end. And that's a far cry from the $1-2 trillion that could have been appropriated in Congress.
In the meantime, the economy continues its reopening and expansion. Friday's Leading Indicators report showed a m/m growth rate of 1.2%. That was just under the 1.3% expectation. But it's also worth noting that the previous number was just revised up from 1.4% to 2.0%.
Consumer Sentiment increased as well with a reading of 78.9 vs. last month's 74.1 and views for 75.0. Consumer Sentiment and Consumer Spending are always important barometers to look at as roughly 70% of our GDP is comprised of consumer spending. And an optimistic consumer will usually spend more.
This week should be a busy week. There's plenty of economic reports on deck. And we'll see if the markets can finally end their pullback and start heading back up the way the fundamentals suggest they should.
See you tomorrow,
Kevin Matras
Executive Vice President, Zacks Investment Research
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