Market cools after summer heat

Mike Loewengart, Managing Director of Investment Strategy

E*TRADE Capital Management


After a blistering five-month rally, the market dipped in September, testing investor confidence with its most significant pullback since March.

It was a volatile month for stocks, punctuated by weakness in big tech, surging COVID infections across Europe, a stimulus stalemate in Washington, and election jitters. While progress continued on the vaccine front, economic data underlined concerns about the recoveries in the labor market and broader US economy. With unemployment still near its highest level in almost a decade and second-quarter GDP down more than 30%, the Federal Reserve committed to holding interest rates near zero for at least the next few years, and Chairman Jerome Powell once again pressed lawmakers for more federal stimulus to help bolster the recovery.1

Here’s a quick rundown of what else happened in the markets last month and what’s on the horizon.

US equities

Stocks posted their first monthly loss since March. After reaching new record highs in early September, the Nasdaq twice fell into correction territory (down 10% from a recent high) while the S&P 500 crossed that threshold on an intraday basis before a late-month bounce helped limit the damage. Both indexes are still positive for the year.

September 2020 US equity performance

FactSet Research Systems

Tech shares were especially volatile, although many analysts viewed the pullback as an understandable development for a potentially overheated area of the market. The materials sector was the month’s best performer (and the second-best last quarter), fueled by a pickup in demand as the economy reopened.

September 2020 sector performance

FactSet Research Systems

International equities

International equities also lost ground, but overseas valuations continue to look attractive compared to their US peers. With both sides of a well-rounded portfolio (stocks and bonds) currently challenged by high prices and low yields, foreign equities have emerged as a key diversification tool.

September 2020 international equity performance

FactSet Research Systems

Fixed income

The fixed income market was relatively quiet. Treasury yields and investment-grade corporate bonds were little changed, while high-yield corporates—one of the riskier areas of the bond market—declined as investors reduced risk appetites.

US Treasury yield curve, September 30, 2020

FactSet Research Systems

Looking ahead

We may have closed the books on a rocky September, but October is historically the market’s most volatile month. That’s not to say another month of losses is set in stone—after all, October has also tended to be one of the most bullish months of the year. Looking at the market’s trajectory since March, the bull market appears to still be intact, albeit down from recent highs. Investors should brace themselves for more bumps in the road.

Here are some themes to consider over your pumpkin spice lattes: 

  • Stimulus stalemate: Congressional negotiations have repeatedly fallen apart, and the approaching election has only heightened the bitter bipartisanship on Capitol Hill—but faith in a full recovery for the economy, and the markets, may depend on additional stimulus. For example, several major airlines have warned that 35,000 jobs could be in danger without more federal aid.2
  • Consumer confidence: While confidence in the future of the economy is seemingly high, so is the amount of money Americans are saving for a rainy day. Translation: A cautious consumer isn’t great for an economy that typically derives 70% of its activity from consumer spending. Several factors, including failed relief talks, a fall COVID outbreak, or a stalling labor market, could weigh on confidence, which may be especially critical heading into the holiday shopping season.
  • Election angst: November 3 is a little more than a month away, and the possibility of a contested outcome has come front and center. While the market hates uncertainty, investors would be wise to remember that volatility associated with the election will ultimately be a limited disruption—not something that should influence long-term decisions.

Thanks for reading. We’ll talk to you again next month.


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  1. The Wall Street Journal, “Fed Officials Step Up Calls for More Government Spending to Speed Economic Recovery,” 9/23/20,
  2. US News and World Report, “Struggling Airline Industry Braces for Looming Layoffs as Congress Remains Deadlocked on Aid,” 9/28/20,
Mike Loewengart
Managing Director, Investment Strategy, E*TRADE Capital Management, LLC

Mike Loewengart is the Managing Director of Investment Strategy for E*TRADE Capital Management, LLC. Mike is responsible for the asset allocation and investment vehicle selections used in E*TRADE’s advisory platforms. Prior to joining E*TRADE in 2007, Mike was the Director of Investment Management for a large multinational asset management company, where he oversaw corporate pension plan assets. Early in his career, Mike was a research analyst focusing on investment manager due diligence for the consulting divisions of several high-profile investment firms. Mike holds series 7, 24, and 66 designations, as well as the Chartered Alternative Investment Analyst (CAIA) designation. He is a graduate of Middlebury College with a degree in economics.

Andrew Cohen, CFA
Senior Director, Investment Strategy, E*TRADE Capital Management, LLC

Andrew Cohen is the Senior Director of Investment Strategy for E*TRADE Capital Management, LLC. Prior to joining E*TRADE, Andrew was the Director of Investments and Operations for a large Registered Investment Adviser, where his responsibilities included investment manager research, asset allocation, and portfolio construction. Previously, he was a Senior Research Analyst and Team Leader for a leading wealth management platform. He is a CFA® charterholder and a member of both the New York Society of Security Analysts and CFA Institute. He is a graduate of Virginia Tech with a BS in finance.

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