The US equity markets closed the month of August with gains despite apprehension concerning trade policy. The S&P 500, NASDAQ, and Russell 2000 all reached new highs during the month. The S&P 500 had its best August performance since 2014, while the NASDAQ posted its best gain since 2000.
All of the major US stock indices are in solid positive territory for the year to date, after a shaky February. The Dow Jones Industrial Average is up about 5%, the S&P 500 has gained 8.5%, the Russell 2000 has risen more than 13%, and the NASDAQ has soared more than 17% this year.
All sectors except Energy (-3.48%) and Materials (-.77%) were positive for the month. Technology continues to shine, rising 6.60%. Consumer Discretionary was the runner-up, finishing up 5.10%, followed by Health Care’s 4.33% rise. Consumer Staples is the worst-performing sector this year, losing more than 5%. Technology stocks benefitted from strong performance from Advanced Micro Devices and Apple reaching one trillion in market cap. Amazon is likely to reach this milestone in the near future.
Oil prices continued to rise due to declines in US crude supplies and concerns of tighter global inventories resulting from sanctions on Iran. West Texas Intermediate crude settled at $69.80 a barrel after reaching $70 a barrel earlier in August.
The yield on the 10-year fell from 3.0% to 2.85% as trade tensions prevented the rate to breach the 3% level. Analysts expect rates to trade sideways going into the FOMC meeting later this month. Another rate increase this month is widely expected, but a December raise is uncertain, as the implementation of tariffs is assessed.
Economic indicators suggest a healthy economy. The Chicago PMI came in at 63.6, slightly below the estimates of 63.8. Any reading above 50 indicates improving conditions. The Consumer Confidence Index climbed to 133.4 in August, despite expectations that it would fall to 126.7. This is the highest reading since October 2000, and should continue to support further consumer spending in the near term. The unemployment dipped to 3.9%, down from 4.0% the previous month. This is only the eighth time the monthly rate has fallen below 4.0% since 1970 – three of those months have occurred this year. Companies are struggling to find workers, with job openings higher than the number of unemployed for the first time in decades. (The 10% rate in October of 2009 seems a distant memory). The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.2% in July on a seasonally adjusted basis. Over the last 12 months, the all-items index rose 2.9 percent. But most importantly, gross domestic product increased at a 4.2% annualized rate in the second quarter, the fastest rate since the third quarter of 2014 (see chart below). The catalysts were increased business spending on software and a decrease in imported petroleum.
Although the indicators support further growth in the economy and markets, clouds remain on the horizon. In particular, the trade negotiations between the US and its international partners continue to weigh on the markets and provide continued volatility. The key to investment success is to maintain a long-term investment horizon with a diversified portfolio that matches an appropriate risk profile.