Stocks ended solidly – if not spectacularly – higher in August despite hugely negative headlines.
These, of course, include the United States' withdrawal from Afghanistan, global concerns about the spread of the Delta strain of COVID-19, and a major hurricane that ravaged New Orleans and Southeast Louisiana.
If you're leading the way this month, thank Federal Reserve Chairman Jerome Powell. Last week, he said the central bank will wind down its stimulus efforts, but slowly. There is even a good chance that an interest rate hike in the United States will not take place until late 2022 or early 2023.
As a result, the Index ended the month at 2.9% and is up 20.4% over the year.
The index's seven-month winning streak is the longest in a 10-month period between April 2017 and January 2018.
The broad benchmark closed at a new high this year at 53 days, the fourth best ever according to Standard & Poor's, and there are still four months to go in the year.
Meanwhile, it rose 4% in August, its third best monthly gain this year. The index rose by 4.2% over the same period. The tech-heavy indices are up 18.4% and 20.9% respectively for 2021 so far.
They posted a 1.2% gain for the month, modest to be sure, but the blue chip index is up 15.3% this year.
Geopolitical tensions, shifting internal realities for equities
Still, there are concerns to keep in mind:
Fears that inflationary forces unleashed as the economic recovery began last year cannot be contained.
The Delta variant of the COVID virus may prove more virulent than the version that spread across the country in 2020, forcing another economic shutdown. (To underscore this point, Seattle Children's Hospital said on Tuesday that one of its patients died from the virus a week ago.)
Geopolitical tensions, particularly in Afghanistan and East Asia.
Then consider this internal reality for stocks:
Overall market gains recently reflect the gains of the largest and fastest growing stocks. Gains for mid-cap and small-cap stocks have declined since a robust rally in the first quarter.
The index last hit a 52-week high, closing on March 15.
In the first quarter, it increased by 12.4%. The midcap index rose 13.1% in the first quarter and peaked on May 10. The small cap index rose 18% in the first quarter and peaked on June 8
The markets have been helped by a number of useful catalysts: the Fed's continued low interest rate policy, the moderation of oil prices (down about 10%) and the surge in consumer spending were driven by a hoped-for end to the COVID-19 virus. Buying homes in the United States is robust, if buyers can find one, and prices are rising – a boon to sellers.
Corporate earnings have generally been very strong over the past nine months, especially for technology stocks. The top 10 stocks in the S&P 500 represent 28% of the index's market cap. Six are technology stocks.
In theory, the decent state of the economy now could allow financial markets to sustain sustained gains at least through the end of the year. Stocks have generally benefited from ultra-low rates. Zoom Video Communications (NASDAQ:) fell 16.7% to $289.50 Tuesday after growth was forecast to slow in the coming quarters.
Stocks could take a hit if Friday's report disappoints. Investing.com estimates that jobs created in August will increase by 750,000, down to 5.2% from last month's 5.4%. A year ago the unemployment rate reached 14.5%.
The Fed wants payrolls to go up and unemployment to continue to fall, even as critics on Wall Street and elsewhere worry that when the recovery kicks in in 2020, it could prove more difficult than anyone anticipated.
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Fed officials have largely resisted the concerns, arguing that the recovery is too fragile to start raising rates too early.
And many investors are comfortable with the Fed. Powell's speech on Friday was warmly received by the markets. The S&P 500, NASDAQ and NASDAQ 100 all closed on new highs.
The S&P 500 has reached a new close at least once a week since the week of 7 since the week of June 7. The NASDAQ 100 has had 20 close highs since early June and 18 52-week highs since early June.
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History suggests that the more the stock market relies on the returns of fewer and fewer companies, the more likely it is to become more vulnerable to a downturn.
September can be extremely volatile. In September 2008, the S&P 500 fell 9.1% when the Great Recession broke out. The main indices fell in the same month in 2011 and 2015 and fell slightly in 2020.
August's winners and losers
500) were
Financial stocks, including Goldman Sachs (NYSE:), were up 10.3% in August and also top the Dow by 30 components.
Communications stocks, including Facebook (NASDAQ:), Alphabet (NASDAQ:), Netflix (NASDAQ:) and Walt Disney (NYSE:).
Technology stocks including Apple (NASDAQ:), Microsoft (NASDAQ:) and chipmaker NVIDIA (NASDAQ:), a major force in graphics computing and crypto-current processing. Apple, Microsoft, Amazon (NASDAQ:), Alphabet and Facebook now have market caps of over $1 trillion.
NVIDIA shares are up 15% this month and about 70% this year.
Utility stocks, valued for their dividends and stable earnings, while defensive stocks took center stage.
The losing sectors:
Materials, including mining stocks, for example Newmont Mining (NYSE:) and FMC (NYSE:).
Consumer luxury goods, including Starbucks (NASDAQ:) and Target (NYSE:).
Industrials, including General Motors (NYSE:) and Boeing (NYSE:).
Consumer goods, including Clorox (NYSE:) and McDonald's (NYSE:).
Energy, including Halliburton (NYSE:) and Chevron (NYSE:).
Among non-equity assets, there was one big winner: , up 13.2% from the month and ended at $46,996 at the end of August. But what a ride. It peaked at $64,788 in mid-April, falling nearly 54% to $29,366 on July 20. After that, cryptocurrency bounced a whopping 72% to nearly $51,000 before falling back.
However, perhaps the biggest loser of the month was not a stock at all, but rather . The commodity shot up to $1,733.50 per 1,000 board feet in May and then collapsed, closing at $482.80 in August, a 72% drop.
