Monthly Market Recap: September 1, 2022

August Market Recap

September 1, 2022 

August will be remembered as the month in which the stock market finally began taking the Federal Reserve seriously.

Following the best month since 2020 (July), August began with positive momentum but ultimately ended in disappointment following harsh words by Fed Chair Jerome Powell, who essentially admonished investors for expecting the Fed might ease off the gas in its race to conquer high inflation.

Performance among the major equity benchmarks was unusually even. The Dow Jones Industrial Average, S&P 500, and NASDAQ all fell 4-5% in August. The losses from their mid-month highs, however, were more significant. From August 16 through month-end, the Dow fell 8%. The S&P 500 dropped nearly 9%. And the NASDAQ decreased more than 10%.

Nine of the 11 sectors in the S&P 500 were lower in August. Technology (-6.3%) and Health Care (-5.9%) were the worst of those. Energy (+2.2%) and Utilities (+0.1%) performed the best.

Index August 2022 YTD 2022
Dow -4.06% -13.29%
S&P 500+ -4.24% -17.02%
NASDAQ -4.64% -24.47%

Our nation’s central bank has a credibility problem due to several instances in recent years when the Fed began to raise interest rates, only to reverse course and prioritize favorable market conditions above all else. That track record helped fuel a rally in US equities that allowed the S&P 500 to gain nearly 19% from its mid-June low to its intraday high on August 16.

Investors, in other words, didn’t believe the hawkish rhetoric from Fed Chair Jerome Powell and others who insisted the Fed was committed to slaying inflation, even if it meant inflicting legitimate financial pain. Powell finally got his point across while speaking at the annual “economic symposium” in Jackson Hole, Wyoming.

“We are moving our policy stance purposefully to a level that will be sufficiently restrictive to return inflation to 2%,” Powell said on August 26. “This will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation.”

Stocks responded to those comments by selling off sharply. The Dow tumbled over 1,000 points (-3%) on August 26. The S&P (-3.4%) and NASDAQ (-3.9%) fell even more.

The good news is that the Fed’s preferred inflation gauge is showing progress in the right direction. The latest Core PCE (Personal Consumption Expenditures) index rose only 0.1% month-over-month, a much slower trajectory than the 0.6% increase from May until June.

Another silver lining: The second-quarter GDP estimate originally released in late July was revised higher to show economic growth contracted by only 0.6% annualized (compared to 0.9% originally).

Bond yields climbed steadily throughout August. 10-year US Treasuries ended the month yielding 3.13% (compared to 2.6% on August 1). The last time 10-year Treasuries yielded 3.5% or more was 2011.

Because parts of the yield curve remain inverted, conservative investors can finally get a decent return on their safe money. For clients with available cash, our Marks Group team has been investing more dollars into 6-12 month Treasuries offering annualized yields around 3.3% (as of August 31).

We don’t often write about currencies, but it’s worth noting the US dollar has reached parity with the euro, something that hasn’t happened for a sustained period of time in almost 20 years. Versus a basket of global currencies, the dollar has strengthened 19% in the last 12 months. For American investors, that trend has hurt the relative performance of international equities. For American tourists, on the other hand, it’s a great time to travel abroad!

Speaking of international investments, Non-US Developed equities slipped 6.1% in August. Emerging Market equities held up much better, down only 1.3%.

The slow but steady trickle of lower gasoline prices continued last month. The national average price for a gallon of gas on August 31 was $3.83, according to AAA. That’s down from $4.21 per gallon at the end of July, but still 20% higher than a year ago ($3.17).

 

 

 

Investment Advice offered through Marks Group Wealth Management, a Registered Investment Advisor.

Marks Group Wealth Management performs in-house analysis on companies.  Statistical information on mentioned companies is obtained from company reports, news releases and SEC filings.  The information set forth herein has been derived from sources believed to be reliable, but is not guaranteed as to accuracy and does not purport to be a complete analysis of the securities, companies or industries involved. Opinions expressed herein are subject to change without notice.  Additional information is available upon request.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments and strategies may be appropriate for you, consult with us at Marks Group Wealth Management or another trusted investment adviser.  Mention of individual equities in this commentary are for informational purposes only and are not intended to represent a recommendation.

Stock investing involves market risk including loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise. International and emerging market investing involves special risks such as currency fluctuation and political instability. These risks are often heightened for investments in emerging markets.  No strategy assures success or protects against loss.  Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.

Past performance is no guarantee of future results.  All indices are unmanaged and may not be invested into directly.

The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.

The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.

The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell Index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.

MSCI EAFE Index consists of the following 21 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.

The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.

The Barclays Aggregate Bond Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment-grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities.