August Market Report – Hitting All-Time Highs

This post will provide an outlook of the August market performance.

Themes from August 2021

The global reopening continued with developed markets further lifting restrictions. August economic data pointed to an economy that, while past the peak rate of growth, is still running hot, and concerns around inflationary pressures continued to build. 
 
On the virus front, the Delta variant continues to spread and daily cases have picked up across the globe. 

Fed Chairman Powell’s Jackson Hole speech was well received by the markets. The Fed appears to be content with the progress made on inflation, which it still believes will be transitory, and expects the labor market to reach the bar for tapering shortly. 

In the political arena the Senate passed a bipartisan infrastructure bill that contains $550 billion of new spending. The bill has moved to the House of Representatives where it faces a tougher battle. 

Global equities delivered total returns of 2.5% in August. Growth stocks benefitted from continued low US yields to post total returns of 3.3%, helping the S&P 500 to deliver returns of 3.0% for the month. Emerging market equities seemingly stalled under the combination of a tougher stance from Chinese regulators and increased virus concerns.  By the end of the month, however, they rebounded to deliver 2.6% over the month.  

Global bonds fell by 0.4%. Investment grade credit spreads widened and sovereign yields rose moderately.  

EM debt and high yield credit both delivered positive returns. 

While uncertainty has increased, it is unlikely to derail the economic recovery we continue to experience. August’s economic data confirmed that the easiest part of the reopening is now behind us. There is likely further upside in risk assets, and greater selectivity, with an eye on fundamentals, is likely to be required moving forward. 

U.S. equity indexes hit new highs. This bucks the traditional trend that August is one of the worst-performing months for equities. The S&P 500 has now climbed higher for seven months. This is its longest winning streak since January 2018. Inflation concerns, supply-chain constraints, labor shortages and the spread of the coronavirus Delta variant were not enough to keep the markets down.

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GDP Outlook

According to Kiplinger and various resources, GDP will likely grow by 6.0% or more this year. Growth in the first two quarters was 6.3% and 6.6%, respectively, because of fiscal stimulus passed by Congress. The below projections are from the Atlanta Fed.

Employment

The labor market continues to strengthen. The July jobs report added 943,000 jobs and saw wages rise by 0.4% month over month. This suggests that while headline inflation may begin to ease, underlying longer-term wage pressures are continuing to build.

Retail Sales

Advance estimates of U.S. retail and food services sales for July 2021, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $617.7 billion, a decrease of 1.1% from the previous month, but 15.8% above July 2020. The August 2021 Advance Monthly Retail report is scheduled for release on September 16, 2021.

Industrial Production

Industrial production increased 0.9% in July after moving up 0.2% in June. In July, manufacturing output rose 1.4%. About half of the gain in factory output is attributable to a jump of 11.2% for motor vehicles and parts, as a number of vehicle manufacturers trimmed or canceled their typical July shutdowns.

Housing

Privately‐owned housing starts in July were at a seasonally adjusted annual rate of 1,534,000.  This is 7.0% below the revised June estimate of 1,650,000, but is 2.5 percent% above the July 2020 rate of 1,497,000.  Single‐family housing starts in July were at a rate of 1,111,000; this is 4.5% below the revised June figure of 1,163,000. The July rate for units in buildings with five units or more was 412,000. 

residential construction

Consumer Price Index Outlook

CPI came in hot at 5.4% year over year, to stay at decade highs. Under the surface, however, core CPI fell and pressure from a number of areas, such as used cars, which have driven inflation in recent months, appears to be abating. August’s flash purchasing managers’ indices (PMIs) are moderating, yet still at high levels.

Durable Goods Orders

New orders for manufactured durable goods in July decreased $0.4 billion or 0.1% to $257.2 billion. This decrease, down following two consecutive monthly increases, followed a 0.8 percent June increase. 

Resources

-Conscious Capital Wealth Management, LLC Monthly Report 
– The Wall Street Journal 
CNBC.com 
Sectorspdr.com 
MSCI.com 
Bloomberg.com 
– FederalReserve.gov 

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