What goes up must come down. At least that was the case for markets in August…
After a strong start to the month, building off of July’s rally, stocks turned sharply lower in the second half of August. The selloff was largely caused by Fed Chairman Jerome Powell’s announcement that interest rate increases would proceed as planned, suggesting people and businesses could expect some pain as a result. This news led to a volatile end to the month, with the S&P 500 falling 4.24%, the Nasdaq closing down 4.64%, and the Dow Jones Industrial Average suffering a 4.07% decline.
Following suit, the overseas markets didn’t fare much better. Inflation is taking its toll throughout the world and both emerging markets, down 0.46% last month, and developed markets, which took a 5.82% hit, are suffering as a result.
Not even the fixed income market could provide stability in August, as the aggregate bond market dropped 2.83%. This comes as the 10 Year Treasury Yield closed at 3.15%, up from 2.67% the previous month. As yields go up, bond prices go down, which has led to a persistently negative bond market so far this year. However, the silver lining is that higher current yields means higher expected future returns.
While September has historically been volatile, this year it has also proved to be so and some experts are warning of more volatility on the horizon. It is possible that all the bad news circulating around has been priced in and therefore the worst may be behind us. Investors are hoping strong seasonal factors, the slowing of inflation, and positive earnings growth will provide a boost to markets as we head into Fall.
Broad Market Returns
|Asset Class||1 Month||3 Month||YTD||1 Year|
|S&P 500 (VOO)||-4.13%||-3.96%||-16.20%||-11.24%|
|Large Cap Growth (VUG)||-5.00%||-1.69%||-25.22%||-21.59%|
|Large Cap Value (VTV)||-2.68%||-5.82%||-7.26%||-2.59%|
|Small Cap Growth (VBK)||-2.39%||0.30%||-23.66%||-26.10%|
|Small Cap Value (VBR)||-2.75%||-4.21%||-9.78%||-6.48%|
|Developed International (VEA)||-5.82%||-9.93%||-19.58%||-20.21%|
|Emerging Markets (VWO)||-0.46%||-5.05%||-15.98%||-18.91%|
|Aggregate Bonds (BND)||-2.80%||-2.14%||-10.78%||-11.72%|
|Corporate Bonds (VCIT)||-3.79%||-2.74%||-12.84%||-14.09%|
|High Yield Bonds (JNK)||-4.22%||-5.52%||-12.82%||-12.43%|
|Long Term Treasuries (VGLT)||-4.46%||-3.29%||-22.40%||-22.64%|
|International Bonds (BNDX)||-3.61%||-2.22%||-10.30%||-11.39%|
Data as of August 31, 2022 // Source: Morningstar
Market Health Indicator
The Market Health Indicator (MHI) measures market health on a scale of 0 – 100, analyzing various market segments such as economics, technicals, and volatility. Higher scores indicate healthier market conditions.
Market Score: 33.53
Many folks who have received raises recently don’t feel like they have.
According to the Bureau of Labor Statistics’ Employment Cost Index, wages increased 1.4% in the second quarter and 5.3% over the last 12 months ending in June, the highest increase since 1983. News that should be exciting and encouraging is actually a disappointment when accounting for inflation though. Adjusting for rising prices, wages actually fell 3.5%.
While wages are climbing, it’s proven to not be fast enough as any gains are being eradicated by high price growth. Some argue that the increase in wages actually further contributes to inflation though. This theory, known as wage-push inflation, says when employers pay their employees more, they also raise prices for the consumer in order to cover those additional costs.
As the Fed has continued to hike rates, the hope is a tighter monetary policy will reign in some of this price growth to help consumers.
Clean, renewable energy continues to grow in popularity and relevance as more opportunities arise to go green.
Even the investment world has been following suit, with Environmental, Social, and Governance (ESG) funds seeing consistent net inflows over the last couple of years.
One industry that hasn’t kept pace is air travel—though Pipistrel, an aircraft manufacturing company in Slovenia, is trying to change that. They have developed the Velis Electro, a fully-electric two seater, which can be used as a greener option for trainee pilots. With gas prices rising and the harsh carbon footprint left by air travel, electric airplane concepts are expected to become more and more popular.
While all-electric commercial planes may still be a ways off, companies like Pipistrel are seeking to change the future of flight, by significantly reducing greenhouse gas emissions.
- September has historically been the worst month for the S&P 500, but the range of returns has varied widely from -11.93% to +8.71%.
- The fastest gust of wind ever recorded on Earth was 253 miles per hour, during tropical cyclone Olivia off the coast of Australia in 1996.
- According to National Geographic, the entire world’s population could fit inside 500 square miles standing shoulder-to-shoulder.
- Brace yourself for UGG boots and Pumpkin Spice Latte’s. Fall officially kicked off on Thursday, September 22.
The information presented is not investment advice – it is for educational purposes only and is not an offer or solicitation for the sale or purchase of any securities or investment advisory services. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser when making investment decisions.
*Independent research conducted by Advisor123.com
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