“It’s just a flesh wound” Black Knight in Monty Python and the Holy Grail.
This early fall is reminding us that not all rational thought has been swept aside by the combination of massive deficit spending and Federal Reserve money supply expansion. Ironically, it is the expanding in circulation (loosely used term here, more on this below) US dollar that bucked the selloff trend in September, posting a respectable 1% return (as measured by the Dollar Index), while all other major asset classes, including gold, retreated. This is certainly not a rout, at least not yet, as the international equity index (the MSCI), although down for the month, slightly outperformed the S&P 500 (down 3.4% versus down 4% for the S&P).
As of right now, the market seems to be saying, “no, you can’t just always keep bidding everything up, the bears have to win once in a while too.” Most corrections tend to start with similar sentiment, when everybody that could have bought has, and there’s not many new buyers left. For now, the pullback implies that market participants are still long-term bulls on tech (down only 3.5% for the month), but are becoming more leery of economic sensitive sectors (real estate and financial especially) who are more reliant on continued helicopter money from the Fed and deficit spending by government.
With the US Presidential election fireworks upon us, the focus of government has shifted to self-preservation, with even the economy potentially taking a back seat. Under this environment, we believe caution is merited across all asset classes.SGR Monthly Dashboard October 2020