The September Selloff: A Healthy Correction, Or The Start Of A New Bear Market?

Video length 00:07:37

On the latest edition of Market Week in Review, Quantitative Investment Strategist Dr. Kara Ng and Head of AIS Business Solutions Sophie Antal Gilbert discussed the recent market selloff and the performance disparities between growth and value stocks this year. They also provided an update on the potential for a second U.S. fiscal stimulus package.

The known unknowns: Culprits of the recent market selloff?

Since charting a new record high on Sept. 2, Ng noted that the S&P 500® Index has fallen nearly 10%. Does this mean the U.S. equity market is experiencing a correction—or could the recent selloff mark the start of a new bear market?

“While 2020 has taught us to be humble with our predictions, the information we have today indicates that September’s selloff is likely just a market correction,” she stated. Ng noted that the downturn in equities is a bit unusual, as market volatility is typically driven by new news. In this case, however, the market’s reaction appears to be primarily driven by the digestion of old news, she said.

“This old news that’s been dragging stocks down consists of the known unknowns: the magnitude of the resurgence in COVID-19 cases, progress toward a vaccine, U.S. elections, the timetable for additional U.S. fiscal stimulus, global trade relations and the progression of the economic recovery,” Ng explained. While there’s some speculation that markets are most concerned over the lack of progress toward additional U.S. stimulus and a second wave of COVID-19 infections in Europe, she said that the overall view and balance of market risks hasn’t drastically changed this month.

Ng added that, in the lead-up to the U.S. equity market’s peak in early September, there were some signs of euphoric sentiment, as well as a few technical indicators that implied earnings expectations for some mega tech companies were too high. “It’s important to note that when pockets of the market run too optimistic, a small reset is normal. Corrections are a healthy part of the stock market,” she concluded.

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