September sell-off steepens

A perspective from E*TRADE Securities 09/21/20

Over the past few weeks, investors have experienced the most significant test of the record market recovery that took off more than five months ago. 

September’s market woes continued Monday, as the major US averages fell amid fears of federal stimulus delays and rising coronavirus infection rates in Europe. The S&P 500® (SPX) dropped as much as 2.7% over the course of the trading day, resulting in a “correction,” or a 10% decline from the recent high it reached on September 2. The index ultimately finished 1.2% lower, marking its first four-day losing streak since February. 

Here’s some perspective on recent events and what to keep in mind for the days and weeks ahead.

Market-moving headlines

There was no shortage of headlines weighing on stocks following a third consecutive down week for the SPX:

  • Surging coronavirus cases in Europe: Analysts are anticipating the possibility of more social-distancing restrictions as infections spike in the UK, Spain, and France. The UK is reportedly considering imposing more nationwide mandates to help reverse the current uptick,1 which could quash business and consumer confidence even if it doesn’t result in a full-blown lockdown.
  • Gridlock in Washington: The death of Supreme Court Justice Ruth Bader Ginsburg over the weekend has seemingly dashed hopes for another relief package before the November election, as the fight to replace her will likely take Congressional priority. Also, anxiety surrounding the outcome of the election has increased in recent weeks.
  • US-China tensions: Even though the TikTok deal was approved by the White House2 after weeks of threats and counterthreats, we haven’t necessarily seen an end to US-China headbutting. In response to US sanctions on Chinese technology companies, Beijing released its own restrictions on American companies doing business in China,3 once again stoking concerns about the deteriorating relationship between the countries. 

Sector specifics

The most recent bout of volatility knocked almost every S&P 500 sector lower on the day, following a familiar pattern from early in the year, when industries sensitive to the economic reopening were hit particularly hard. Restaurants, cruise lines, and airlines tumbled, along with cyclical stocks in the industrials and materials sectors that had been outperforming the broad market over the last three weeks.

The tech sector—which has weighed heavily on the market this month as some of the year’s biggest winners have deflated—closed in the green for the day. The tech-heavy Nasdaq Composite took the smallest hit of the major indexes, although it was down more than 10% from its record high as of September 21.

Finally, it’s worth noting some rotation trends. Investors appear to be lightening up on US stocks in favor of international equities, as well as moving out of growth darlings for more traditional “value” stocks. The rotation highlights investors’ shifting views on company fundamentals, as they reposition to include a broader cross section of market segments. 

Keeping it in perspective

So far, September is living up to its volatile reputation. Given we’re on the doorstep of October (the most historically volatile month of the year), investors shouldn’t be surprised to see more volatility in the coming weeks, especially with the approaching election.

Here are some important points to keep in mind:

  • Asset allocation and diversification are powerful tools. Diversifying a portfolio across asset classes and investments is the fundamental framework for a long-term investing strategy and can help provide guardrails for weathering all market conditions. 
  • Assess risk tolerance. During periods of record-setting equity performance, it’s easy to lose sight of how much risk you are truly comfortable with. Investors with very aggressive asset allocations may decide they want to adjust their mix to something more conservative. Alternatively, investors who are comfortable with their risk level may want to reassess the performance of riskier assets and rebalance accordingly. Those with managed accounts can view their allocations on the Portfolios page. For those with standard brokerage accounts, we have a portfolio analysis tool that can help: When you’re in a particular portfolio, click on the Analysis tab and scroll down.
  • Keep emotions in check. This is the biggest challenge. Just as investors should be cautious about chasing returns in a market at all-time highs, letting emotionally charged headlines influence trading during a sell-off could end up doing more harm than good. History has proven that trying to time when to enter and exit the market is typically a fool’s errand. 

Bottom line: Investors with long-term perspectives shouldn’t be surprised to see periodic volatility. There will always be something moving the markets in either direction at any given time. Don’t let near-term noise derail your plan—keep investment decisions aligned to longer-term goals and ignore the day-to-day bumps. 

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  1. CNBC, “More restrictions expected in Europe as coronavirus spreads rapidly and rattles markets,” 9/21/20,
  2. CNBC, “Trump agrees to TikTok deal with Oracle and Walmart, allowing app’s U.S. operations to continue,” 9/20/20,
  3. CNBC, “China releases details on its own blacklist, raising uncertainty for foreign businesses,” 9/21/20,

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