Market Pulse: Bull market will rumble on |

Market Pulse: Bull market will rumble on

David Vomund

September lived up to its reputation as being one of the two worst months for stocks. The big-cap tech stocks that had led the rally for months rolled over and fell day after day.

Apple, the world’s largest company by market value, fell from 137 to 107, a 22% plunge in a month. Google and Facebook were also hit. This set a bad tone for the overall market and dealt a blow to the legions of momentum traders.

As I’ve mentioned before, the tech stocks had reached levels far out of line with realistic expectations for earnings and growth. They were rising just because they had been strong.

The market hates uncertainty and in the early days of this new quarter uncertainty is high. President Trump contracted COVID-19. As I write he seems to be recovering well, aided by new pharmaceuticals that weren’t available five months ago. Another uncertainty is the election. Will it be settled in early November or will it be contested and end up in the courts? Having the Supreme Court determine the election outcome would be bad for stocks.

The virus surge in Europe is a setback for their economic recovery, which had been coming along. France, Spain and the U.K. are the hardest hit. Cases are increasing here as well.

Those reasons and others have taken a temporary toll on the market. Not to worry. The link between earnings expectations and the market, together with trillions of dollars in money-market funds looking for better returns, is what boosted stocks to record highs in early September and will take it even higher for reasons I often mention. Expectations for 2021 and now 2022 are encouraging. They will provide a tailwind for prices and support them during the inevitable sell-offs.

Now to the economy. The Organization for Economic Cooperation and Development(OECD) now believes the global economy will decline by 4.5% in 2020, not the 6% they predicted in June. Their new outlook for the U.S. is also improving. GDP will decline 3.8% in 2020, not the earlier 7.3% estimate.

Overall, the near-term uncertainty of the election points toward increased volatility. After that, low interest rates, a lack of attractive alternatives to stocks and a massive amount of available cash will once again become the key drivers to stocks. Then the prospects for earnings growth next year will take over and more money will be put to work. The bull market will rumble on.

David Vomund is an Incline Village-based Independent Investment Adviser. Information is found at or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.

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