Wall Street ended a rocky August on a largely down note on Friday. For the second-straight day, both the S&P 500 and Nasdaq Composite lost ground. The broad S&P 500 dipped 0.2%, while the tech-heavy Nasdaq Composite tumbled 0.37%. August was a record-setting month for the S&P 500. Even with those drops, the index still closed up every week, a first for this year as it increased all the way through an entire month for the first time.
Most notably on Thursday, the S&P 500 closed above 6,500 points for the first time, marking a record high. The S&P 500 and the Dow are roaring! They’re on track for four straight months of increases. Despite positive momentum from demand, market analysts are remaining pessimistic. As it usually is, September is a tough month historically, with the S&P 500 average a 0.7% loss over the last 75 years.
Economic Indicators and Earnings Reports
The economic landscape remains mixed as well. The rate of increase measured by the Personal Consumption Expenditures (PCE) index came in at an unadjusted 2.6% year-over-year for July, as anticipated by financial markets. Almost 98% of companies in the S&P 500 have now reported their second-quarter earnings. That’s an impressive 81% of them beating down Wall Street’s earnings estimates, and according to FactSet data, this is a pretty impressive feat.
Chris Zaccarelli, Chief Investment Officer at Independent Advisor Alliance, noted the significance of these figures in relation to inflation:
“Inflation is increasing ever so slightly, but right in line with forecasts.”
The CBOE Volatility Index, which measures expected market volatility, is currently trading near its lowest levels of the year. This is a powerful sign of calm and confidence in the markets. The Russell 2000 index accelerated by 7.5% this month, marking a robust comeback. This increase is due to investor excitement over possible interest rate cuts, expected as early as September.
Political Pressure and Market Reactions
Against this economic backdrop, political tensions are further shaping hot market dynamics. The Trump administration has intensified their attack on the independent central bank. Yet at the very same time, it has implemented broad tariffs that would impact hundreds of industries. There have been attempts to oust Federal Reserve Governor Lisa Cook, with Rob Haworth, Senior Investment Strategist at U.S. Bank Wealth Management, commenting on the uncertainty surrounding this issue:
“It’s not clear whether he has the power to fire Lisa Cook, and so the market is waiting and seeing how far this will go.”
A poorer-than-expected jobs report fed fears about the economy’s short-term prospects. Like employers, investors are anxiously awaiting the release of CPI data for the month of August. This letter, scheduled to be released on September 11, should provide useful context for what’s happening with inflation.
Looking Ahead
As August comes to an end, the entire marketplace is staring into wide open fields of new opportunities and new challenges. Seasonal trends suggest that September is typically one of the worst months for stocks. Read on to learn what key economic metrics and political events investors should watch that could impact 2023’s market trajectory.
Adam Turnquist from LPL Financial succinctly summarized the potential pitfalls ahead:
“making it the worst performing month for stocks.”