August is historically one of the worst months for market performance. Bucking that trend, stocks traded in a relatively narrow range and ended the month with mixed results. The surge of the coronavirus Delta Variant temporarily weighed on investors as we saw a drop across the board midmonth. However, since then the markets seem to have shaken off those concerns.
Some disappointing economic data was released over the past few weeks: July retail sales numbers dipped slightly (1.1%) -- but were still well above pre-pandemic levels. Consumer confidence also slipped. The preliminary reading for July (as reported by the University of Michigan Consumer Confidence Survey) showed a sharp decline. This is likely driven by concerns over the impact of the Delta Variant.
The Federal Reserve (Fed) released minutes from its July meeting (7/27 – 7/28) indicating the economy has met the test of “substantial further progress” and therefore they will likely reduce asset purchases before the end of this calendar year. However, Fed Chairman Jerome Powell cautioned that this tapering is not a precursor to an imminent rate hike. “The intervening month has brought more progress in the form of a strong employment report for July, but also the further spread of the delta variant. The timing and pace of the coming reduction in asset purchases will not be intended to carry a direct signal regarding the timing of interest-rate liftoff, for which we have articulated a different and substantially more stringent test.” Powell continued, “We have much ground to cover to reach maximum employment and time will tell whether we have reached 2 percent inflation on a sustainable basis.”
As of August 31st, market returns were mixed. The Dow Jones Industrial Average (Dow) posted a modest decline, dropping by 155 points (0.44%). Meanwhile, the S&P 500 showed strong returns, increasing by 62 points (1.39%). The NASDAQ Composite Index (NASDAQ) was the top performer, growing by 436 points (2.94%). Both indexes broke records set previously this month: the S&P 500 closed above 4,500 for the first time and the NASDAQ blew past 15,000.