“Good investors gather information, put that information into current and historical context, then make sound decisions.”
August has provided equity markets with the anticipated exhale after two robust months. That being said, the August ‘exhale’ market pullback has been robust as well. MTD, the S&P 500 Index is down -3.86%, the S&P 400 MidCap Index is down -5.36%, and the S&P 600 SmallCap Index is down -6.54%. That leaves the S&P 500 Index up +15.99% YTD, (still obviously a large cap market advance), the S&P 400 MidCap Index up +7.26% YTD, and the S&P 600 SmallCap Index up +4.56% YTD. With the exception of utilities, consumer staples and financials, the rest of the major market indexes we follow remain in positive territory.
Month to date all of the major market indexes that we follow are in negative territory except Energy. The S&P Energy Index is up +0.16% MTD. The next best performing equity sector MTD is the S&P Health Care Index down -0.85%. The S&P Information Technology Index down is -5.34% MTD, the S&P Consumer Discretionary Index is down -4.93% MTD, and the Dow Jones Internet Index is down -6.62% MTD. These three sectors remain the best YTD, with the S&P Information Technology Index up +37.92%, the S&P Consumer Discretionary Index up +27.58%, and the Dow Jones Internet Composite Index up +32.09%.
International equities continue to follow domestic equities. MTD the MSCI EAFE Index is down -6.08%, the MSCI Europe Index is down -6.06%, and the MSCI Emerging Markets Index is down -7.06%. For the year, these three international equity indexes remain in positive territory. YTD the MSCI EAFE Index is up +7.87%, the MSCI Europe Index is up +9.96%, and the MSCI Emerging Markets Index is up +3.56%. There are still so many unanswered questions regarding the ongoing war in Europe as well as the ongoing trade war with China. As our vision improves regarding these questions, the opportunities may increase. For now, we remain cautious.
Bond markets have also been trading lower in August. MTD the Bloomberg US Aggregate Bond Index is down -1.58%, the Bloomberg Municipal Bond Index is down -1.81%, and the Bloomberg US Corporate High Yield Bond Index is down -0.66%. The Bloomberg Global Aggregate Bond Index is down -2.34% MTD. Year-to-date the Bloomberg US Aggregate Bond Index is up +0.41%, the Bloomberg Municipal Bond Index is up +1.21%, and the Bloomberg US Corporate High Yield Bond Index is up +6.13%. Bond markets continue to be held in suspense while the Federal Reserve determines their next step.
Institutional investors started to show their hands with equities in the past few days. Large cap growth stocks, in particular the technology sector, were strong, indicating that these may once again be the leaders going forward. This ongoing Bull Market is proving to be persistent and resilient. The August correction thus far is a mild correction within the confines of an ongoing bull market. The long-term trend for equities remains positive. Bond markets may prove to be a positive surprise, but not quite yet.
The next moves for financial markets are about anticipation. Equity markets will be anticipating the fourth quarter, which is historically very positive. Bond markets will be anticipating when the Federal Reserve will stop increasing short-term rates. Both equity and bond markets still need to traverse the month of September, which is historically one of the most difficult months of the year. That being said, the month of September can also present significant opportunities. The August exhale was also highly anticipated and may be setting the stage for a timely rally to close out the year.
Edward D. Foy, Manager, SELECTOR® Money Management, Chief Investment Officer, Foy Financial Services, Inc.
Sources: StockCharts, Morningstar, Stock Trader’s Almanac.