There’s No Stopping Them
Equities rise again in August.
Equities have managed to rocket ahead, despite the many obstacles 2020 has thrown in their path. Will stocks be able to keep up their trajectory?
While stock markets have historically dropped in August, equities continued to surge higher for the month, rising 7.8%. The S&P 500 has powered past the losses from March, up 8.3% for the year-to-date period. But the divergent returns continued, as Internet media and technology-related stocks fueled gains, while energy stocks continued their downward spiral.
Technology and Internet-related stocks again led markets, powered ahead by solid earnings. Second-quarter profits for Google (NASDAQ: GOOGL), Apple (NASDAQ: AAPL), Facebook (NASDAQ: FB), Amazon (NASDAQ: AMZN), and Microsoft (NASDAQ: MSFT) surpassed $33 billion.
Technology Stocks Continue To Lead
Record Q2 earnings — or were they?
August stock performance was bolstered by earnings announcements. The second quarter marked the highest rate of positive earnings surprises since 2008, with 84% of companies reporting earnings per share that exceeded expectations Technology and healthcare stocks had the largest beats, while energy had the worst. But that only tells part of the story, as a majority of these companies had lowered their earnings estimates by record amounts coming into Q2 earnings season.
Fed pivot
At its August meeting, the Federal Reserve announced a policy shift regarding inflation. Striving to support employment, the central bank stated it would keep interest rates low for a longer time frame. For the past several years, the Fed has focused on keeping inflation at 2%. However, it has shifted its focus to “shortfalls” in employment.
Fed Chair Powell stated “we will remain highly focused on fostering as strong a labor market as possible for the benefit of all Americans.” While the employment rate improved in July, the total unemployed was still 16.3 million. And many of the furloughs might become permanent as the coronavirus’s effects extend into fall and beyond.
Geopolitical concerns
Trade talks between the U.S. and China again resurfaced. The potential sale of social media behemoth TikTok came into play, and China announced new restrictions on artificial intelligence technology exports.
In Japan, Prime Minister Shinzo Abe resigned, threatening U.S.-Japan relations. And in North Korea, health concerns regarding Kim Jung-un resurfaced, and his sister, Kim Yo-jung, appears to be taking on more responsibilities.
Will it be a September to remember?
As schools in the U.S. return to school, COVID-19 concerns are re-surging. Many districts are already fully remote, while others are pivoting to hybrid models of learning. Many parents were frustrated with the level of interaction and engagement experienced in the spring. What EdTech companies are in the forefront for this “new normal” of education?
One of the largest educational platforms is Kahoot (KAHOOT-ME.OL), a Norway-based company that provides game-based learning. Its interactive platform makes sitting in front of a computer all day more tolerable, particularly with the younger set. While the firm is operating at a loss, Q2 revenue grew 49%. Quizlet, a platform that allows students to make their flashcards or quizzes, is another interactive alternative. The company is in the midst of raising funds. Two other well-known EdTech companies, Instructure, known for its Canvas learning system, and Blackboard, are both private.
September has not historically been a great month for stock markets, with the S&P 500 dropping an average of 0.70%. As this September will look vastly different, will markets continue to surge ahead? For the past few months nothing has been able to stop the market’s momentum. With the election looming and fresh geopolitical concerns on the horizon, will stocks finally slow down in September?
Markets are in constant flux, and the only thing certain is continued uncertainty. To learn more, visit quantumeconomics.io. This information is for educational purposes only and should not be construed as trading advice. Past performance is not an indication of future results.
