Telemus Special Market Commentary: Changing Seasons


    The equity market had a strong month of August, driven by gains in large cap technology stocks such as Facebook, Amazon, Apple, Google and Microsoft (the FAAMG group). It turns out the gains derived during the best August since 1984 were at least partially fueled by large purchases of option contracts in these large cap technology companies. SoftBank has been reported to be the ‘Nasdaq Whale’, or a large investor that had purchased a sizable number of those contracts.

    As September rolled in, a combination of concerns around the run up in technology shares, jitters around the upcoming election, and a lack of progress by congress on additional fiscal relief ignited an initial selloff. Option traders who had to buy shares in the big tech stocks to hedge the option contracts on the way up in August, began to unwind their positions as the market fell. This created a bit of a domino effect, likely leading other investors that were concerned about technology stock valuations to follow suite.

    It’s natural to expect a pullback after significant upswings, particularly those punctuated by a spike in volume. Even though the S&P 500 has pulled back 7% from its recent record high, it remains at levels where it traded a mere month ago. There have been statements made in the press on whether we are in another tech bubble, reminiscent of the late 1990’s. We view this analogy to be misleading on two fronts. First, the FAAMG stocks that have been driving the market higher are established businesses, with sizable moats, high levels of profitability and pristine balance sheets. While we might argue the prices of these stocks may be a little ahead of themselves, they aren’t embedding aspirational expectations. Second, the notion of a bubble implies that stock prices more broadly are susceptible to popping. The rally in the market, and the upswing in August in particular, has been quite narrow. Aside from large technology companies, valuations in many other parts of the market appear more reasonable. Therefore, we see opportunities in the broad market, just in different stocks than what has driven the rally thus far. As such, the market may be nearing an inflection into an environment where the performance of individual stocks may become more influential to portfolio returns than changes in the broader market.

    With Labor Day behind us, rhetoric associated with the election will accelerate. We would expect volatility to pick up as investors react to changes in potential electoral outcomes. A more balanced blend of upswings and downswings is likely ahead, with the opportunity for stock selection to come to the forefront.


    Matt Dmytryszyn

    Matt joined the Telemus team in 2018. As Chief Investment Officer, he leads the firms the investment process and research effort. Matt has experience as an equity analyst and portfolio manager and has advised corporate pension plans on their manager selection. He’s been quoted in Money Magazine and Barron’s.

    Matt Dmytryszyn

    PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. Investment decisions should always be made based on the client's specific financial needs, goals and objectives, time horizon and risk tolerance. Current and future portfolio holdings are subject to risk. Risks may include interest-rate risk, market risk, inflation risk, deflation risk, currency risk, reinvestment risk, business risk, liquidity risk, financial risk, and cybersecurity risk. These risks are more fully described in Telemus Capital's Firm Brochure (Part 2A of Form ADV), which is available upon request. Telemus Capital does not guarantee the results of any investments. Investment, insurance and annuity products are not FDIC insured, are not bank guaranteed, and may lose value.

    New call-to-action
    New Call-to-action