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Market Commentary for the week ending October 2nd, 2020


  • The September employment report suggests a long road to full recovery.
  • All assets, except commodities, gained for the week recovering some of the prior week’s losses.
  • Real estate stocks surged helped by strength in several retailers’ stocks.


Growth vs. Value

The battle between growth and value stocks is an ongoing one. Some investors favor growth stocks, those generally with faster sales and earnings growth, believing their stocks will follow their sales and earnings trends higher. While other investors favor value stocks, or those with prices that appear to be inexpensive relative to their current earnings and dividends, believing these will outperform and provide some downside protection.

The fact is that over the past 30 years these two groups of stocks have delivered relatively similar long-term returns. As the graph shows, growth stocks, in blue, have surged ahead in 2020. From December 1990 through September 2020 growth stocks have delivered a +10.9% compounded return compared to value’s +9.7%. Just 9 months ago though value stocks had been leading over the long-term.

Growth VS. Value Cumulative Performance

Source: https://finance.yahoo.com/ and Patton analysis; Growth = Russell 1000 Growth; Value = Russell 1000 Value

Although the long-term returns were nearly identical for 29 years through the end of 2019, clearly there are times when one leads the other as we have seen by the surge in growth stocks in 2020. The graph below shows the difference in 1-year returns, on a monthly rolling basis, between growth and value stocks. Bars above 0% tell us that growth stocks have outperformed value stocks during the prior year and visa versa. As it shows, the recent rally in growth stocks relative to value has never been so extreme as it has been the past year.

Growth VS. Value 1 year rolling returns

Source: https://finance.yahoo.com/ and Patton analysis; Growth = Russell 1000 Growth; Value = Russell 1000 Value

This September was the first month since September of 2019 that value stocks performed better than growth breaking an unprecedented 11-month winning streak for growth stocks. Only time will tell us if the is just a pause the in the strength of growth stocks or if the cycle is shifting longer-term.

Interesting Numbers


Specialty retailer Bed Bath & Beyond (BBBY) reported strong quarterly results including +89% year-over-year growth in digital channel (online) sales. The company’s stock surged +41.8% for the week!

26 million

According to a weekly government report approximately 26 million people are collecting unemployment benefits from state and federal programs. This compares to the monthly employment report, a different government report, saying there are 12.6 million people out of work. Economists guess that the difference is explained by duplicate applications, fraud, and other errors.

This Week’s Performance Highlights

Market Indexes week ending October 2, 2020

Source: www.YCharts.com

  • Large U.S. stocks gained for the week with both the S&P 500 and NASDAQ Composite up +1.5% while the Dow Jones Industrials outperformed gaining +1.9%. Big tech, 2020’s big winners, generally posted modest gains but still remain well off month-ago highs.
  • The market gains were widespread with energy stocks being the only losing sector, and by far the worst year-to-date performers, while financials lead the way with a gain of +3.5%.
  • Small U.S. stocks were among the biggest winners jumping +4.4% but still off -6.7% for the year while large stocks are higher year-to-date. Investors flocking to small stocks is a sign that they believe the economic recovery will continue.
  • International markets captured their fair share of buyers this week with developed markets gaining +1.3% led by Eurozone markets up +2.2% while Australia was down fractionally and Japanese stock gained a fraction.
  • Emerging markets did even better gaining +2.5% helped by China, the largest of the emerging markets, up +3.3%. Brazil’s market was one of the only lower for the week down -5.1% and off a massive -42.1% for the year.
  • Real estate stocks were the biggest winners surging +6.5% for the week helping to erase a portion of their still sizeable 2020 loss. Stocks such as mall owner Simon Property Group (SPG), up +7.3%, were helped by strength in retail stock as illustrated in the accompanying table.

    Select retail stocks

    Source: www.YCharts.com

  • Bonds prices were unchanged as interest rates remain near record lows.

Economic Indicators

The U.S. economy added 661,000 jobs in September falling short of economists’ estimates of 800,000 and less than half the prior months 1.489 million. These added jobs continue the rebound that started in May following the loss of more than 17 million jobs in March and April. During the last 5 months we have seen approximately 10.5 million jobs added leaving 6.8 million more people unemployed today than pre-pandemic.

US Employment statistics


The unemployment rate fell to a new pandemic low of 7.9%, lower than economists had forecast, from 8.4% the month before. Pushing the rate lower was 700,000 people exiting the labor force, in other words giving up on finding a job and no longer counted as unemployed, due to the scarcity of jobs available.

In a separate report new jobless claims for the most recent week came in at 837,000. This was generally inline with forecasts and down from the previous week’s 873,000. In remains about 4 times higher (per week) than pre-pandemic levels.

Pre-pandemic the economy was adding a little less than 200,000 jobs per month. At this pace it will take another 34 months to fully recover to pre-pandemic employment levels. Of course, the recent 5 month rebound could continue which would shorten the full recovery time while, on the other hand, the economy could slow and lengthen it. It’s really impossible to know but everything points to the recovery likely being measured in years and not months.

Personal income fell by -2.7% in August while spending increased by +1.0% as consumers dug into savings. The drop in income is being blamed on the lack of government support and the ending of the $600 per week federal unemployment benefit. Although personal income declined it is still +2.0% higher than in February pre-pandemic as illustrated in the below graph.

Personal income

Source: https://fred.stlouisfed.org/series/PI

Home prices continue to rise with the Case-Shiller National Home Price Index up +4.8% in the most recent month compared to +4.4% the month before. Generally, there was strength in the Southeast and West while the Northeast and Midwest lagged.

Consumer Confidence far exceeded economists’ expectations coming in at the highest level during the pandemic at a reading of 101.8 compared to 86.3 a month earlier. Somewhat surprising and contradictory to the employment reports discussed above, consumers are taking a more favorable view of current business and labor market conditions and have optimism about the short-term outlook. A component of the report measuring future expectations surged to 104.0 from 86.6. Although this is a good report, the numbers remain well below pre-pandemic levels.

Upcoming Economic Reports

  • Trade Deficit
  • Jobless Claims
  • Consumer Credit

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