| Friday, September 18, 2020 Headlines 1. US markets sell off to end the week lower 2. Money flows out of cash and gold for first time in months 3. Value lives as investors rotate into cyclical stocks 4. What to expect next week Markets Closed
Year-to-Date
 Image courtesy GettyImages/Михаил Руденко Markets Today U.S. markets were under pressure all day, and nearly all week. The Nasdaq and the S&P 500 closed lower for the third straight week as tech stocks keep dragging them down. Apple alone has lost 22% since its recent highs, and it has the weight to move markets with it. Volatility was relatively tame today given that it was a quadruple witching day, and many options contracts were due to expire. It will come back—don't worry.
This week saw something we haven't seen in awhile. Money flowed out of cash, money markets, and gold and into global equities for the first time in weeks. You won't see it in the shiny tech stocks because a lot of it flowed into cyclical and value stocks for a change. That may be a sign that investors are believing in the economic recovery that is everywhere but in the labor market.
Here's how major markets performed this week:  Chart courtesy YCharts PODCAST ALERT! The latest episode of The Investopedia Express is LIVE. On next week's podcast:
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Headlines:
 Money Flows Back Into Stocks After 12 straight weeks of outflows, money came rushing back into stocks this week, according to data from BofA Research and EPDR. That money came out of cash, money markets, and gold, where it has been sitting all year, and came rushing into global equities. The Fed's promise to maintain interest rates at current levels until 2023 may have had something to do with that. Here's the breakdown:
So, Why Is the U.S. Stock Market Lower? Great question. The S&P 500 and the Nasdaq are both lower over the past several weeks as they have been dragged down by the big technology stocks that drove those indexes back to record highs. Apple alone has shed 22% or $500 billion in market cap since its most recent high on Sept. 2.
But value stocks, after being put on the endangered species list, have come stomping back as investors have rotated out of growth. They are parking their money in cyclical value stocks to ride out the economic recovery that is underway. For the first time in 11 months, value is actually outperforming growth, according to Bespoke Investments. Photo courtesy BofAResearch  Chart courtesy Bespoke Investments ETFs Tell the Tale We could see the rotation from growth stocks to cyclicals in the daily movements of the indexes. We can also see it in individual stocks like heavy-equipment maker Deere & Co. (DE), industrial manufacturers like Flexsteel Industries (FLXS), and mining giants like Freeport-McMoran (FCX), which continue to make new record highs. These stocks and sectors were battered from March until late May, but they are climbing back with the economic rebound.
ETFs may offer a clearer picture of the rotation. The SPDR Industrial Sector ETF, the iShares Global Metals & Manufacturing ETF, and the SPDR S&P Metals and Mining ETF have all out performed the SPY and QQQ ETFs over the past month.  Chart courtesy YCharts What to Expect Next Week After three straight weeks of declines for the S&P 500 and the Nasdaq, investors may need a week to regroup. They'll get that next week with a relatively light corporate calendar. The U.S. economic calendar is also light, except for home sales, which have been red hot lately, thanks to low interest rates and motivated buyers.
With the rotation out of money markets and gold into stocks this week, here's how several major asset classes have performed so far this year:  Events This Week
Monday, Sept. 21:
Tuesday, Sept. 22:
Wednesday, Sept. 23:
Thursday, Sept. 24:
Friday, Sept. 25:
Nike Earnings This upcoming Tuesday, Nike (NKE) reports earnings for Q1 of its 2021 fiscal year. Because its fiscal year doesn't sync up with the calendar year, it generally precedes the rest of earnings season, and that can help offer a glimpse of what's to come. Last quarter, Nike was hit hard by store closures, especially in North America, where its sales plummeted by 46%. Another big issue was that, with many of its sales shifting to digital, its gross margin shrank from 45.5% to 37.3% year-over-year as shipping costs and returns increased costs. Even as stores have begun to open up, digital sales are likely to be a primary avenue of business as the world is unlikely to return to its pre-COVID-19 normal until well into 2021, so Nike will need to find ways to streamline its digital distribution if it wants to improve profits. More broadly, as a heavily retail-dependent company, its sales can help give investors a preview about how other similar companies may do as the world begins to open up again.
PBOC Prime Rate Decision The People's Bank of China announces its benchmark prime interest rate this Sunday, Sept. 20. As China has had the COVID-19 pandemic under control for a while now, the country seems to be recovering, with consumer spending rising in August year-over-year, the first rise in 2020. The PBoC is expected to keep rates steady.
U.S. Home Sales U.S. existing home sales for August will be released this upcoming Tuesday, and new home sales are released Thursday. The housing market bounced back enormously in July, jumping nearly 25% month-over-month after having been in a severe slump for the previous three months. The interest rate on a 30-year fixed rate mortgage has been declining steadily every month in 2020, and as the lockdowns loosened this summer, people seem to have felt safe enough to go house hunting and take advantage of the lower rates. Also, by July, it was clear that the pandemic and its effects would be with us for quite a while, and so people wanted to make sure they were happy with their homes. After all, they are going to be spending a lot of time there.
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(charts courtesy YCharts)  Shares of Aptiv are up by nearly 7% after a Morgan Stanley analyst increased the auto parts company's price target from $63 to $150. Similarly, Dollar General's stock price rose by over 2% following a JPMorgan analyst boosting the variety store chain's price target from $230 to $250.  Cruise stocks, such as Norwegian, Carnival, and Royal Caribbean, are down today amid Carnival cancelling its planned cruises into early 2021, in addition to selling two of its ships. Shares of Vornado Realty fell by over 5% after Truist Securiti equities researchers lowered their Q3 earnings estimates for the real estate investment trust. Word of the Day Sector RotationThe term sector rotation refers to the act of shifting investment assets from one sector of the economy to another. Sector rotation involves using the proceeds from the sale of securities related to a particular investment sector for the purchase of securities in another sector. This strategy is used as a way to capture returns from market cycles and to diversify holdings over a specified holding period.  Today in History Sept. 18, 1974: At a seminar sponsored by the Institute of Chartered Financial Analysts, Benjamin Graham declared that his valuation formulas enabled him to estimate that the fair value of the Dow Jones Industrial Average was around 750. The Dow closed that day at 651.91, but it surged 3.4% the next day as word of Graham's analysis spreads—and it rose past 750 just six months later. Martin S. Fridson, book review of Janet Lowe's The Rediscovered Benjamin Graham.
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Friday, September 18, 2020
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