As Fed Chair Jerome Powell and Treasury Secretary Steve Mnuchin’s testimony on the economic recovery continues today, we see that momentum is slowing—though the manufacturing sector is still showing signs of strength. Equities have also eased off the gas and appear to have hit a long-term resistance level—will it hold? Finally, though we might typically expect to see small caps outperform during this phase of the economic cycle, anemic earnings and historic leverage during the coronavirus era have contributed to ongoing weakness. Will the trend continue into 2021?
1. The Chicago regional Fed survey is confirming a slowing recovery…
![chi fed](https://blog.investbcm.com/wp-content/uploads/2020/09/9.23-The-Chicago-regional-Fed-survey-is-confirming-a-slowing-recovery....png)
Source: The Daily Shot, from 9/22/20
2. The sharpest V recovery we have seen yet…
![sharp v recovery](https://blog.investbcm.com/wp-content/uploads/2020/09/9.23-The-sharpest-V-recovery-we-have-seen-yet....png)
Source: The Daily Shot, from 9/23/20
3. It looks like the surge in do-it-yourself investing is having the usual outcome…emotionally driven selling…
![surge in do yourself](https://blog.investbcm.com/wp-content/uploads/2020/09/9.23-It-looks-like-the-surge-in-do-it-yourself-investing.png)
Source: The Daily Shot, from 9/23/20
4. Are the markets poised for a longer-term consolidation or will the Covid environment continue to defy history?
![long term consolidation](https://blog.investbcm.com/wp-content/uploads/2020/09/9.23-Are-the-markets-poised-for-a-longer-term-consolidation-or-will-the-Covid-environment-continue-to-defy-history.png)
Source: The Daily Shot, from 9/22/20
5. Historically, small caps out-perform in the recovery phase of an economic cycle, but Covid seems to have its own cycle so far…
![small caps](https://blog.investbcm.com/wp-content/uploads/2020/09/9.23-Historically-small-caps-out-perform.png)
Source: Russell Investment Group, FactSet, BofA US Equity & US Quant Strategy, from 9/22/20
6. One reason the small cap indices have lagged so badly of late: ~1/3 of the companies don’t make any money…
![small cap](https://blog.investbcm.com/wp-content/uploads/2020/09/9.23-One-reason-the-small-cap-1.png)
Source: The Daily Shot, from 9/22/20
7. With earnings subdued for many small caps, their leverage has grown to twice the “norm”…
![risk leverage](https://blog.investbcm.com/wp-content/uploads/2020/09/9.23-With-earnings-subdued-for-many-small-caps-1.png)
Source: FactSet, BofA US Equity & US Quant Strategy, from 9/22/20
8. Is the ~10% decline in the USD over?
![bloomber soft dollar](https://blog.investbcm.com/wp-content/uploads/2020/09/9.23-Is-the-10-decline-in-the-USD-over.png)
Source: The Daily Shot, from 9/23/20
9. The USD reversal has helped gold break out of its pendant pattern to the downside. It is early yet for both trends…
![gold prices](https://blog.investbcm.com/wp-content/uploads/2020/09/9.23-The-USD-reversal-has-helped-gold-break-out-of-its-pendant-pattern-to-the-downside.-It-is-early-yet-for-both-trends....png)
Source: The Daily Shot, from 9/23/20
10. Emerging market economies, and market make-ups, are evolving…
![emerging markets](https://blog.investbcm.com/wp-content/uploads/2020/09/9.23-Emerging-market-economies.png)
Source: MarketDesk Research, iShares, from 9/22/20
11. Europe’s second wave of Covid is hitting hard:
![covid france](https://blog.investbcm.com/wp-content/uploads/2020/09/9.23-France.png)
![covid spain](https://blog.investbcm.com/wp-content/uploads/2020/09/9.23-Spain.png)
![covid uk](https://blog.investbcm.com/wp-content/uploads/2020/09/9.23-U.K..png)
Source: JHC CCE, from 9/22/20
12. U.S. Covid cases have stopped declining. Return to school at all levels has not helped. The virus just waits until complacency kicks in and….
![US cases](https://blog.investbcm.com/wp-content/uploads/2020/09/9.23-U.S.-Covid-cases-have-stopped-declining.-Return-to.png)
Source: JHC CCE, from 9/23/20