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With only a few days to go it looks like August is going to be the fourth consecutive positive month for domestic and international equity indexes. That being said, the pace does not appear to be slowing, which is unusual given the time of year. Since 1950, August has been the second-poorest performing month of the year for the S&P 500 and the NASDAQ indexes, with negative performances on average during post-presidential election years of -1.2% and -0.8%, respectively. Yet here we are, looking at the S&P 500 Index up +2.11% MTD, and the NASDAQ Composite Index up +2.06% MTD. In spite of the severe ‘tariff correction’ earlier in the year, it does appear that financial markets have moved on to the next set of bricks in the wall.
The positive rotations seen in July continued into August, most notably in the S&P 600 SmallCap Index, up + 6.80% MTD, and the Russell 2000 Index, up +6.76% MTD. The S&P 400 MidCap Index is up +3.08% MTD, while the S&P 500 Index is up +2.11% MTD. The best performing equity sector index in August has been the S&P Pharmaceuticals Index, up +14.14% MTD, followed by the S&P Metals and Mining Index, up +10.73%, the S&P Telecommunications Index, up +9.75%, and the S&P Semiconductors Index up +8.42%. On the other side, the S&P Internet Index is down -0.62% MTD, and the S&P Utilities Index is down -0.51%.
International equities are also enjoying an excellent August. The MSCI EAFE Index is up +4.21% MTD, the MSCI Europe Index is up +3.69% MTD and the MSCI Emerging Markets Index is up +2.54% MTD. Yes, tariffs and all. International equity indexes also continue to hold their leadership positions for the year. The MSCI EAFE Index is up +22.73% YTD, the MSCI Europe Index is up +25.32% YTD, and the MSCI Emerging Markets Index is up +20.50% YTD. By comparison, back in the U.S.A., the S&P 500 Index is up +10.87% YTD, with the S&P 400 MidCap Index up +4.96% YTD, and the S&P 600 SmallCap Index finally crossing into positive territory, up +2.98% YTD. International equities are definitely stronger thus far, but we still have the historically best quarter of the year on deck for domestic equities. There may not be any losers in this race.
Bond markets are reacting positively, if not cautiously so, to the Federal Reserve’s changing stances on interest rates. In September the first cuts might just make it through as Fed Chairman Powell has doggedly stuck to guns about inflationary concerns amid the tariff discussions. While the political sabers continue to rattle, the Bloomberg US Aggregate Bond Index has gained +1.08% in August, and is now showing a positive +4.87% return YTD. The Bloomberg US Corporate High Yield Bond Index is up +1.07% MTD, and is up +6.17% YTD. Municipal bond markets are on a rougher trail. The Bloomberg Municipal Bond Index is up +0.73% MTD, but only up +0.18% YTD. The Bloomberg High Yield Municipal Index has gained +0.37% MTD, but is still down -1.47% YTD.
Now we are looking at the set up for September and for the rest of the year and it is intriguing. Just for starters, as poor a reputation as August holds for performance, September’s is even worse. This is the time of the year when institutional investors traditionally ‘clean the closets’ of investment ideas which never took hold, or flat out did not work out at all. This year, they have done a pretty good job of keeping the outliers within range of the leaders. Instead of selling losers, they, and we, find ourselves in the enviable position of selling winners to consolidate into other winning positions. That changes the pace for the months of August and September, and their role. Rather than just being a staging area, they might find themselves to be part of the runway. This creates some very interesting possibilities for the fourth quarter, and we’re looking forward to it.
Edward D. Foy, Manager, SELECTOR® Money Management, Chief Investment Officer, Foy Financial Services, Inc.
© 2025 Edward D. Foy. ed@foyfinancial.com, www.foyfinancial.com.
Sources: StockCharts, Morningstar, Stock Trader’s Almanac.