August Markets Power Ahead Despite Slowing
Stocks continued to power ahead in August for a rare seven-month winning streak despite emerging signs of economic slowing. The monthly jobs report was the most recent example, indicating just 235,000 jobs added back to the economy for August. This was the lowest gain reported since January and was far below monthly reports from earlier in the summer, which averaged in the 700,000 range (BBC, “US Jobs Growth Disappoints as Recovery Falters,” 9/3/21). Rising Delta infections are the purported culprit, placing a damper on travel and related spending. Late in the month, hurricanes Ida and Henri will also undoubtedly have taken a short-term toll on the economy until later rebuilding efforts get underway. Economists are lowering gross domestic product estimates for the second half of the year, accordingly.
This raises the question of how markets have been able to continue to hit all-time highs on relatively low volatility. One major area of support was Federal Reserve Chair Powell’s Jackson Hole statement, where he masterfully explained all the reasons that they plan to reduce their bond buy-back programs later in the year, while keeping intra-bank borrowing rates low for the foreseeable future. The recent jobs report could put cold water on any aggressive tapering schedules, thus supporting markets despite weakening economic reports. While this reasoning is admittedly contradictory, remember that overall, the economy remains strong. If anything, the recent weakening simply highlights that we aren’t through with COVID just yet.
As for equities, the S&P 500 finished up another +3.0% for the month (‘SPY’ ETF proxy), now higher some +21.6% for the year. Small-caps and overseas issues still have a lot of catching up to do, highlighting the year’s focus on presumably safer large-cap technology plays and a rising US Dollar. In contrast, bonds were negative on the month and remain down on the year. The Barclay’s Aggregate Bond Index was off slightly, -0.2% for August (‘AGG’), leaving it essentially flat for 2021. Importantly for balanced investors, this means total portfolios are likely seeing returns in just the high single-digits to low teens. Remember, by being diversified, you will never have the highest available performance, but nor will you have the lowest and your overall day-to-day experience should be much smoother as your investments build towards your long-term goals and objectives. Finally, commodities fell back -1.6% for the month, demonstrating some merciful cooling among one of our inflation barometers after concerns earlier in the year.
Paul Tarins, RICP®,WMCP®,CSRIC™
There has been a good deal happening throughout the rest of the world, including the United States’ exit from Afghanistan and China calling its larger technology companies to heel. In the end, these news items have had little impact on markets during these dog days of summer. Nevertheless, traders will soon be back from their summer holidays, and be advised that the month of September can often be a difficult one for stocks. In addition, it would be rare to see more than eight consecutive months of gains, so we are statistically due a pause about here. Meanwhile, we wish you all a wonderful Labor Day holiday weekend ahead.
Source: Index proxies based on ETF time-series data from CSI Data, Inc. Data deemed reliable, but not guaranteed. Past performance is no guarantee of future performance or profitability
Paul Tarins is an investment adviser representative of and offers investment and advisory services through Portfolio Medics, a registered investment adviser. Nothing contained herein should be construed as a solicitation for investment advisory services. Sovereign Retirement Solutions and Portfolio Medics are not affiliated.