In this month’s market review, our Chief Options Specialist, Jason Ayres, reflects on the September market conditions.

The U.S stock market closed out the summer at record levels; however, September has so far belonged to the bears as the summer rally appears to have stalled for now with all the major stock market indices giving back a significant portion of their August gains.

The are a few reasons for the pull back:

  • Stretched valuations of the big tech companies have been driving U.S. stock valuations to all-time highs
  • The growing potential for a second wave of COVID-19 cases as students head back to school and temperatures push more people towards indoor gatherings
  • The U.S. election uncertainty, which historically has led to volatile markets in the month or two before voters head to the polls

This pull back, however, can be seen as a healthy correction in a market that has become overheated based on the concentration of capital in Facebook, Amazon, Apple, Microsoft, and Google (FAAMG).

With an election on the horizon and COVID-19 cases on the rise, it’s no surprise that investors have decided to take some profit to deploy into new opportunities and buy their favourite tech stocks at a better price.

Meanwhile, FOMC confirms that interest rates will remain low until 2022 to support the continued growth and recovery of the economy and push inflation rates higher. The Bank of Canada has the same objective.

Since long-term low interest rate are considered to be crucial in supporting the recovery of the global economy, bond yields will remain unattractive and investors will be inclined to continue buying stocks in search of a better return.

There will likely be some choppiness in the investment markets as we head into the U.S. election, but this volatility is a great opportunity. The market remains ideal for active trading.