NEW YORK (Reuters) – U.S. stocks are set to close out another quarter with sharp gains on Wednesday, but investors could remain wary with the upcoming U.S. presidential election and mounting coronavirus cases.
The S&P 500 <.SPX> was on track for a September decline, its first monthly fall since March, when the coronavirus began its rapid spread across the United States.
The benchmark index was last up nearly 9% for the third quarter, following a nearly 20% rise in the second quarter. That would make its two-quarter gain its biggest such rise since 2009.
The Nasdaq composite index <.IXIC> was set to gain more than 11% for the third quarter, and register its biggest two-quarter rise since 2000.
The Nasdaq’s big comeback The Nasdaq’s big comeback: https://graphics.reuters.com/USA-STOCKS/QUARTEREND/bdwvkkyjnvm/chart.png
Hopes of a strong recovery and historic stimulus from Washington and the Federal Reserve fueled the U.S. stock market rally following the coronavirus-driven crash in March, but stocks have struggled since the market peaked on Sept. 2. Recent weeks have been marked by a sell-off in heavyweight technology-related shares.
“People are going into the end of the quarter with a bit of a wary, uncertain feeling,” said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.
“We not only have a still-unstable COVID pandemic situation, you have the uncertainty of the election.”
MATERIALS LEAD IN SEPTEMBER
“The September pullback in U.S. equities occurred from overbought conditions, following a five-month surge, in the historically worst-performing month of the year,” Terry Sandven, chief equity strategist at U.S. Bank Wealth Management, wrote in a note.
But he said many risks for stocks remain, including the pandemic, Nov. 3 presidential election and a Supreme Court vacancy following Ruth Bader Ginsberg’s death.
Investors have worried that the election results will be uncertain or possibly not accepted.
The S&P 500 materials sector <.SPLRCM> outperformed and led gains among S&P sectors for September, while the most heavily weighted sector, technology <.SPLRCT>, was set to be among the weakest.
Performance among sectors was mixed for the quarter. Materials and industrials <.SPLRCI> were set to be among the top performers along with consumer discretionary <.SPLRCD> and technology for the third quarter, while energy <.SPNY> lagged.
S&P 500 sectors in Q3: https://fingfx.thomsonreuters.com/gfx/mkt/xlbvgjylwpq/Pasted%20image%201601479647809.png
S&P 500 component performance in Q3: https://fingfx.thomsonreuters.com/gfx/mkt/dgkplbkjypb/Pasted%20image%201601489353000.png
GROWTH WINS OVER VALUE FOR QUARTER
Valuations make cyclical sectors “compelling,” Sandven noted.
Investors have struggled to figure out where to invest, with many mega-cap tech stocks trading well above their long-term price-to-earnings ratios.
Value stocks continued a trend of underperforming growth names for the quarter. The Russell 1000 growth index <.RLG> is up about 14%, while the Russell 1000 value index <.RLV> is up about 6%.
Growth vs Value performance: https://fingfx.thomsonreuters.com/gfx/mkt/oakveeyoovr/Pasted%20image%201601479583561.png
Stocks continued to look more attractive compared with bonds.
After tightening for most of the quarter, the spread between the S&P 500 dividend yield and the 10-year U.S. Treasuries yield
began to widen in the last month.
S&P dividend yield vs 10-yr U.S. Treasury: https://fingfx.thomsonreuters.com/gfx/mkt/ygdvzkamqpw/Pasted%20image%201601478849314.png
(Reporting by Caroline Valetkevitch, Noel Randewich, Chuck Mikolajczak and April Joyner; editing by Richard Chang)
Copyright 2020 Thomson Reuters.