August Market Recap
September 1, 2021
The S&P 500 did not finish the month of August at an all-time high. Based on the way US equities have traded this summer, that statement is actually newsworthy.
Stocks are lingering just below their high-water mark, and the market’s pace of gains remained on cruise control last month. As Labor Day approaches, the S&P has now risen for seven months in a row. It’s the longest such streak since a 10-month run ending in December 2017. Through the first eight months of 2021, the S&P has closed at a new all-time high on 53 different occasions.
Ten of the 11 equity sectors finished higher in August, led by Financials (+5.0%) and Communication Services (+5.0%). Energy (-2.9%) was the only sector to post a monthly loss.
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August 16 brought another milestone for this bull market. On that date, the S&P 500 officially doubled off its pandemic low (March 2020). It took less than 17 months, in other words, for stocks to rise 100%. That is the fastest the S&P has doubled since World War II. Major selloffs have been few and far between. The S&P has not fallen as much as 5% even once in 2021.
The US housing market is on an incredibly strong run of its own. The latest Case-Shiller data shows that every major metropolitan area in the country experienced double-digit increases in home prices over the last 12 months. West coast cities Phoenix (+29%), San Diego (+27%), Seattle (+25%), and San Francisco (+22%) saw the largest gains. Nineteen of America’s 20 largest cities show home prices at all-time highs (Chicago being the lone exception).
The Federal Reserve’s annual economic gathering in Jackson Hole, Wyoming, took place in late August. Previously referred to as a “summit,” the event seems to have been rebranded as a “symposium.” As far as changes announced by the Fed, that was arguably the most significant. From a policy perspective, Chairman Jerome Powell (again) confirmed the Fed is NOT ready to reduce its asset purchasing and NOT ready to increase interest rates.
That familiar stance, however, caused a more noticeable market reaction than in previous months. The Dow closed 243 points higher on the day of Powell’s speech, which demonstrates equity markets had already been pricing in expectations of Fed tapering. Powell did indicate a reduction in the Fed’s bond buying is likely to occur before year-end. Markets still suggest no rate hikes are likely until 2023.
Small-cap stocks climbed higher in the final week of August, though monthly gains for the Russell 2000 (+2.1%) were mostly in line with larger-cap benchmarks. The Russell remains slightly below its record high set in March.
The trend of higher inflation continued last month. The Fed’s preferred inflation metric, the “personal consumption expenditure price index,” rose 0.4% from a month earlier. The PCE index’s 4.2% year-over-year increase shows the most significant inflation since 1991.
Despite the steady gains in stock prices, consumer confidence fell sharply in August to its lowest level since February. Concerns about increased cases of the Delta COVID variant and the reality of higher inflation seem to be the primary culprits.
Oil prices surged 10% in the last full week of August trading. West Texas Intermediate Crude finished the month at $68.50 per barrel. That’s 7.4% lower than a month earlier, a decline that contributed to the underperformance of energy stocks. On the bright side, a new government report showed domestic demand for oil climbed to its highest level since the start of the pandemic.
The 10-year US Treasury Bond yielded 1.3% as of August 31, up slightly from its 1.24% yield at the end of July.
The latest employment report from payroll services company ADP indicated fewer jobs than expected were created in August, but there seems to be plenty of work for those who are still looking. As of mid-August, there were more than 10 million job openings nationwide. That’s more than the total of unemployed working-age Americans. The government’s August jobs report will be released on September 3.
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