August Market Recap
September 1, 2020
It’s getting hard to remember what down days feel like in this new stock market reality, much less a down month.
The elevator carrying US equity prices not only kept rising in August, its speed accelerated as well. The S&P 500 recorded its best month since April. The Dow Jones Industrial Average gained nearly as much as in the previous three months combined. And the NASDAQ’s technology-driven performance continues to exceed even the loftiest of expectations.
Nine of the 11 sectors in the S&P moved higher in August, with four of those gaining 8% or more. Technology climbed another 12%, the fifth month in a row Tech has risen at least 5%. Consumer Discretionary (+9.5%), Communication Services (+9.1%), and Industrials (8.6%) also yielded big returns. Energy (-2.7%) and Utilities (-1.0%) fell slightly.
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Generally, these monthly recaps focus on major benchmarks rather than specific stocks, but Apple, which has rallied 75% year-to-date, has been one of the unofficial flag-bearers for this summer stock rally and made some significant headlines.
In the first week of August, Apple became the largest-ever single weighting in the S&P 500. At that point, it represented 6.5% of the benchmark index (IBM set the previous record in 1985). By the end of the month, Apple had completed a 4-for-1 stock split and swelled to 7.3% of the S&P.
The S&P moved higher on each of the first six trading days in August before finally recording a down-day on August 11. It had another 7-day winning streak from August 20-28. In total, the S&P was green on 16 of the 21 trading days last month, a .762 batting average. But even that doesn’t tell the whole story. Those five down-days combined added up to less than 2% of losses, a nearly total absence of downside volatility.
Gold also made headlines when it surpassed $2,000 per ounce for the first time on August 4. Gold has risen nearly 30% year-to-date and roughly 15% since we sprinkled some into our Marks Group portfolio allocations earlier this summer.
The historic monetary stimulus spearheaded by the Federal Reserve had led to expectations of higher inflation down the road, which has pumped up gold prices and led to a weakening of the US dollar. As we have written before, you need not be bearish on equities to have a positive outlook on gold.
On August 18, the S&P eclipsed its all-time high set in February, which is truly astonishing when you consider the index experienced a 34% collapse between those two dates. Now, at least in terms of the market, it’s as though the global pandemic never happened.
Federal Reserve Chairman Jerome Powell announced changes to the Fed’s official policy at their annual summit (traditionally held in Jackson Hole, Wyoming). The Fed’s revised inflation target will be one that “averages 2% over time,” but allows for higher inflation following periods when inflation is especially low.
In other words, the Fed will be less likely to apply the brakes in periods of strong economic activity by raising interest rates. The change reinforces beliefs that interest rates will remain exceptionally low for an exceptionally long time, even after unemployment falls considerably.
The Fed revisions led to a rise in US Treasury yields, relatively speaking. 10-year Treasury yields approached 0.75% late in the month, their highest point since June.
US home prices continue to hit new highs. The latest data from Case-Shiller shows that home prices nationally have risen 4.3% from a year earlier and 64% from the Great Recession lows in 2012.
Phoenix (+8.9%) and Seattle (+6.8%) recorded the largest increases in the last 12 months. Minneapolis (+5.5%) was fifth. Much of the gains are being driven by low supply. Inventory at the end of July was down 21% compared to a year earlier, according to the National Association of Realtors.
International equity prices lagged US stocks in August. Non-US Developed Market equities gained 4.7% last month. Emerging Market stocks increased 2.9%. Oil prices rose slightly to $42.61 per barrel, up roughly 6% from a month earlier.
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