On Friday, the S&P 500 index closed out August in positive territory. The achievement was especially impressive considering the plunge experienced at the beginning of the month due to the U.S. nonfarm payrolls report for July released on August 2, which turned out to be a significant market mover. With job growth coming in lower than expected and the unemployment rate ticking up, concerns were sparked over an economic slowdown and a recession. Additionally, the Bank of Japan's surprise interest rate hike on July 31 and the subsequent unwinding of the so-called "yen carry trade" also hit global markets. A carry trade is when traders borrow a low-yielding currency and invest the proceeds in higher-yielding assets in a different currency. This combination came to a head on August 5, a day which saw the S&P 500 plunge 3%. The benchmark index hit a low of 5,119.26 points that day, nearly 10% below its record intraday high.
The remainder of August was all about rebounding. Economic data on inflation and retail sales helped becalm growth and recession fears. Furthermore, at the annual Jackson Hole symposium, Federal Reserve chair Jerome Powell said that the time had come "for policy to adjust," a statement widely interpreted as the central bank agreeing to start a monetary policy easing cycle.
The S&P 500 and the Nasdaq finished with modest gains for the month, but as the two charts below illustrate, it was a roller coaster ride.
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Market Returns for August 2024 and YTD as of August 31, 2024:
With August coming to a close, I wanted to provide a more detailed comparison of the performance of stocks versus bonds (as measured by long-term US Treasuries). As shown in the charts below, equity returns over the last one, two, and five years have been well above the historical average. In just the last year, the S&P 500 is up over 26%, which ranks in the 78th percentile relative to all other one-year periods. Looking further back, 10-year returns are closer to their long-term average, while the 20-year annualized gain of 10.6% is slightly below the historical average.
The picture for bonds, as measured by the BofA 10+ Year US Treasury Index, hasn’t been as positive, but would you believe that bonds have been up for four straight months, pushing their one-year total return up to 6.0%? That’s still below the long-term average of 7.9%, but we haven’t seen a one-year percentile reading in the 45th percentile in a long time! Looking further back, though, returns have been terrible on both an absolute basis and
relative to history, but hey, you have to start somewhere!
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August Portfolio Changes
I made no changes in the portfolios in July, which produced a very positive return for July in our stock holdings. Your returns are available from your advisor or by logging into our performance software.
September Possible Changes
Last month, I reported that I would extend the bond duration in July in preparation for reduced rates. I did not do so. This month, I will. I have not selected the exact change yet, but I will do so in the coming week.
Monthly Performance
August was supposed to be a seasonally weak month, but bulls overpowered those headwinds to push the S&P 500 into positive territory for the month. As we move into September, those headwinds will likely pick up. That doesn’t mean the market can’t go up, but it doesn’t have the calendar working in its favor. As shown in the chart below, since 1945, the S&P 500’s average change in September has been a decline of 0.78%, one of just three months during the year where stocks have averaged declines and by far the weakest of those three.
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With the negative seasonal trends highlighted above, there are two caveats. First, despite the S&P 500’s historical average declines in February and August, the S&P 500 was up during both months this year, and February was the best month of the year. Additionally, the only month the S&P 500 has declined this year was April, which has historically been one of the best months, with an average gain of 1.55%. Second, while September has historically been a negative month, in years when the S&P was up at least 15% YTD through August, median returns were positive, as shown in the table below.
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(1) Chart by Bespoke.com
Schorn Wealth and Fiduciary Planning, LLC, believes all information in this report to be accurate, but we do not guarantee its accuracy. None of the information in this report or any opinions expressed constitutes a solicitation of the purchase or sale of any securities or commodities. This report is not personalized advice. Investors should do their own research and/or work with an investment professional when making portfolio decisions. As always, the past performance of any investment is not a guarantee of future results. Schorn Wealth's and Fiduciary Planning, LLC's representatives or clients may have positions in securities discussed or mentioned in its published content.
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