The S&P 500 recorded its first down month since February, hurt by weakness among banks, automakers, and Big Tech firms. Energy was the only S&P 500 sector to preserve an August gain, bolstered by rising oil prices. A rare four-day rally in late August helped narrow deeper earlier losses of over 4.5%. Solid earnings amongst the largest chipmakers revived interest in AI (artificial intelligence) companies. Favorably, the S&P 500 finished August above its 50-day moving average.
A deluge of mixed economic data during the second half of the month provided hopeful inspiration that peak interest rates may be nearing. As there was no FOMC policy meeting in August, Wall Street and the Federal Reserve remain data- dependent until policymakers announce their next rate decision on September 20. Meanwhile, Atlanta Fed President Raphael Bostic said fellow policymakers need to be cautious not to overtighten monetary policy, which could imperil the labor market.
In economic highlights, the core personal consumption expenditures (PCE) price index, the Fed’s preferred measure of underlying price inflation, posted its smallest back-to-back monthly gains in over two years, fueling expectations for a soft landing or even avoiding a recession. The annualized core PCE did rise to 4.2% from 4.1%. U.S. retail sales remain resilient, rising 0.7% in July, topping projections for +0.4% increase and up from +0.3% in June. Retail sales are up 3.2% from a year ago.
Wall Street was challenged in August following a series of credit rating downgrades and negative warnings to numerous banks. The rating agencies noted caution on banks who have outsized exposures to commercial real estate. Taken together with the banking industry facing increased regulation and rising deposit costs, the KBW Bank Index fell 8.8% to its worst level since March when SVB and Signature Bank collapsed.
More favorably, the second-quarter earnings season is closing, with 76% of companies topping projections. 2Q expectations are on track for revenues to expand by 0.5% and earnings per share (EPS) to contract by 4.2%. Initial projections at the start of the earnings season called for a 7.4% EPS contraction.
As shown in the style performance boxes below, large cap companies outperformed both mid and small caps in August and meaningfully so YTD. Moreover, for the month, growth fell the least in large and mid caps while in small cap, value outperformed. For the year, growth continues to dominate over value, especially among large cap companies.
Style returns are represented by: Large Value (Russell 1000 Value), Large Core (Russell 1000), Large Growth (Russell 1000 Growth), Mid Value (Russell Mid Cap Value), Mid Core (Russell Mid Cap), Mid Growth (Russell Mid Cap Growth), Small Value (Russell 2000 Value), Small Core (Russell 2000), Small Growth (Russell 2000 Growth). Source: Cetera Investment Management, FactSet, FTSE Russell, total return based, which includes dividends. Investors cannot invest directly in indexes. Data as of 8/31/2023.
Top & Bottom Performers
In the sector performance, of the 11 S&P 500 sector groups only Energy (+1.8%) posted a gain in August, extending its top performance for a second straight month. Communication Services (-0.37%), which fell the least last month, is cementing its top YTD performer ranking (+45.16%). Technology (+44.66%) follows in the second-best YTD gainer position.
Foreign developed equity markets fell more broadly in August, underperforming the U.S. with the MSCI EAFE Index (representing developed markets outside of the U.S. and Canada) having losses 2.2% more than S&P 500. Emerging markets fell a sharp 6.16%, almost entirely erasing a 6.3% gain in July.
Turning to fixed-income markets, investors closely monitored see-sawing Treasury yields that again gyrated amidst changing global central bank rate outlooks. Treasury yields remain inverted with shorter maturity Treasurys yielding more than longer-term notes and bonds. On a broader basis, investment-grade bonds slipped just 0.64% in August, as measured by the Bloomberg U.S. Aggregate Bond Index. Bloomberg’s U.S. High Yield Bond Index, representing holdings of below investment-grade (junk-rated) corporate bonds, outperformed, rising 0.28% to extend its YTD gain above 7%. Lastly, Municipal bonds fell 1.44%, cutting its YTD gain to 1.59%.
This report is created by Cetera Investment Management LLC. For more insights and information from the team, follow @CeteraIM on Twitter.
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The Bloomberg Barclays Capital U.S. Aggregate Bond Index, is a broad based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government–related and corporate debt securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS and CMBS (agency and non-agency) debt securities that are rated at least Baa3 by Moody’s and BBB- by S&P. Taxable municipals, including Build America bonds and a small amount of foreign bonds traded in U.S. markets are also included.
The Bloomberg Barclays US Municipal Bond Index covers the USD-denominated long-term tax exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds, and prerefunded bonds. Eligible securities must be rated investment grade (Baa3/BBB- or higher) by Moody’s and S&P and have at least one year until final maturity, but in practice the index holding have a fluctuating average life of around 12.8 years.
The Bloomberg Barclays US Corporate High Yield Index measures the USD-denominated, non-investment grade, fixed-rate, taxable corporate bond market. Securities are classified as high yield if the middle rating of Moody's, Fitch, and S&P is Ba1/BB+/BB+ or below, excluding emerging market debt. Payment-in-kind and bonds with predetermined step-up coupon provisions are also included. Eligible securities must have at least one year until final maturity, but in practice the index holdings has a fluctuating average life of around 6.3 years.
The Barclays U.S. Government Bond Index is comprised of the U.S. Treasury and U.S. Agency Indices. The index includes U.S. dollar-denominated, fixed-rate, nominal US Treasuries and US agency debentures (securities issued by US government owned or government sponsored entities, and debt explicitly guaranteed by the US government).
The Bloomberg Commodity Index is a broadly diversified index that allows investors to track commodity futures through a single, simple measure. It is composed of futures contracts on physical commodities and is designed to minimize concentration in any one commodity or sector. It currently includes 19 commodity futures in five groups. No one commodity can comprise less than 2% or more than 15% of the index, and no group can represent more than 33% of the index (as of the annual reweightings of the components).
The Cboe Volatility Index® (VIX®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices.
The MSCI EAFE is designed to measure the equity market performance of developed markets (Europe, Australasia, Far East) excluding the U.S. and Canada. The Index is market-capitalization weighted.
The MSCI Emerging Markets is designed to measure equity market performance in global emerging markets. It is a float-adjusted market capitalization index.
The MSCI All-Country World Index (ACWI) is a market cap weighted index designed to represent performance of the full opportunity set of large- and mid-cap stocks across 23 developed and 26 emerging markets, covering more than 2,700 companies across 11 sectors and approximately 85% of the free float-adjusted market capitalization in each market.
The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000 Index companies with higher price-to-book ratios and higher forecasted growth values.
The Russell 1000 Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 Index companies with lower price-to-book ratios and lower forecasted growth values.
The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe and is a subset of the Russell 3000 Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership.
The Russell 3000 Index measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market.
The Russell Midcap Index measures the performance of the mid-cap segment of the U.S. equity universe and is a subset of the Russell 1000 Index. It includes approximately 800 of the smallest securities based on a combination of their market cap and current index membership. The Russell Midcap represents approximately 31% of the total market capitalization of the Russell 1000 companies.
The S&P BSE SENSEX Index is a free-float market-weighted index of 30 well-established and financially sound stocks on the Bombay Stock Exchange, representative of various industrial sectors of the Indian economy.
The S&P 500 is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ.
The NASDAQ Composite Index includes all domestic and international based common type stocks listed on The NASDAQ Stock Market. The NASDAQ Composite Index is a broad-based capitalization-weighted index.
The Shanghai Composite Index is a stock market index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange.
The U.S. Dollar Index is a weighted geometric mean that provides a value measure of the United States dollar relative to a basket of major foreign currencies. The index, often carrying a USDX or DXY moniker, started in March 1973, beginning with a value of the U.S. Dollar Index at 100.000. It has since reached a February 1985 high of 164.720, and has been as low as 70.698 in March 2008.
West Texas Intermediate (WTI) is a crude oil stream produced in Texas and southern Oklahoma which serves as a reference or "marker" for pricing a number of other crude streams. WTI is the underlying commodity of the New York Mercantile Exchange's oil futures contracts.