Market Recap: August 2020

September 03, 2020
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Market Commentary

Financial markets experienced another robust month in August due to stronger economic news and an increased optimism of a forthcoming solution to the Covid-19 virus. The level of investor confidence in both the financial markets and the U.S. economy remains partially buoyed by the Federal Reserve continuing to keep the fed funds rate at or near zero. And while there is perceived hope and positivity in some news, other events lead one to believe the road to recovery might not yet be paved with gold. These developments might include that the fifth coronavirus relief package is failing to make any headway, the CDC had to issue an order to halt evictions of residential renters due to a high number of people being negatively impacted by the shutdown, and trade tensions with China are starting to rise once again. In general, however, recent economic data leaned toward the positive side. The August ISM Manufacturing index rose again to 56.0 versus 54.5 expected and 54.2 last month, signaling a foreseen uptick in manufacturing activity. Second quarter GDP again was revised slightly upward to -31.7% from -32.9% while consensus growth expectations for next quarter rose to 20%. Initial jobless claims dropped to 1,186k from last month’s 1,435k and the unemployment rate declined to 10.2% from 11.1%. Conversely, consumer confidence printed lower than expected at 84.8 actual versus 93.0 expected, returning to levels seen early during the economic shutdown.

August 2020 Equities Indices

Equities

With a strong August, all equity indices shown at right are now in the green for the last 12 months and most show gains year-to-date. With YTD returns of 32.15%, the NASDAQ Index continues to tower over the field. However, the S&P 500, which finished higher for a fifth straight month and posted a 7.19% return for August, gained in all but five trading days. Technology, which makes up over a quarter of the index, remains the primary force in returns. Retail also did well with help from better-than-expected second quarter results. Stocks tied to a reopening or economic recovery thesis like airlines, cruise lines, and casinos tended to see outsized gains and represented four of the ten best performers in the S&P 500 for the month.

August 2020 Fixed Income Indices

Fixed Income

With increased optimism, bond investors recognized a growing likelihood of economic recovery and even inflation. Subsequently, interest rates rose, and the yield curve steepened, leaving bond prices and most bond indices lower for August. Yield on the 2-year Treasury rose 2 basis points in August while the 10-year note saw a 17 bp rise, leading to the steeper curve, consistent with a more positive economic outlook. The higher rates were even more pronounced for longer issues, as the yield on the 30-year treasury bond rose by 28 bps during the month. The lone bright spot in fixed income markets was in high-yield debt, which posted a monthly return of nearly 1%, due to improved investor comfort with riskier debt.

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