The benchmark index’s performance for August is only the second negative month overall this year, after February. August was really a tale of two halves, with markets retreating until the middle of the month before erasing some of those losses over the final two weeks.
After a blistering rally this year that has seen the S&P 500 (SP500) advance nearly 20% up till July, positive sentiment took a significant hit in the first week of August, chiefly due to a surprise downgrade of the United States’ long-term credit rating by Fitch. A conservative forecast from iPhone-maker Apple (AAPL) along with an increase in the size of debt sales announced by the U.S. Treasury also weighed on equities.
The pullback in markets continued over the second week of August, as technology stocks extended their decline and key inflation reports sent mixed signals. The consumer price index report for July showed that the headline and core figure remained unchanged from June. However, the producer price index report showed a rise in both figures from the previous month. The contrasting data led to investors to wonder over the Federal Reserve’s next move in terms of monetary policy.
Markets were also under pressure due to an intensifying sell-off in bonds, both in the U.S. and across the globe. Treasury auctions in particular were in the spotlight in the second week of August, with the auctions seen as a test of greater supply on the market after the government boosted its funding targets to add $19B in new cash raised.
The third week of August was especially tough, with the S&P 500 (SP500) falling over 2%. A continued sell-off in bonds kept dragging on equities, along with a deteriorating economic picture in China, another warning from ratings agency Fitch, hot retail sales data, a largely hawkish message from the latest Federal Reserve minutes and a mixed performance from retail giants Walmart (WMT), Target (TGT) and Home Depot (HD).
Things began to take a turn in the fourth week of this month. In what was the main event of that week, Fed chief Jerome Powell gave a speech at the Jackson Hole Symposium that was closely watched for clues about the central bank’s future monetary policy actions. Concerns over higher interest rates for longer were tempered after Powell largely stuck to a “no surprises” message of data-dependency with a bias towards hikes. Furthermore, a surge in shares of chip giant Nvidia (NVDA) to a record high after another blowout quarter and guidance helped technology stocks rebound.
The final week of this month has seen market gains due to soft economic data on the labor market along with a downward revision to U.S. Q2 GDP growth. Additionally, a key inflation gauge preferred by the Fed has held steady on a M/M basis. The weak economic indicators have strengthened bets that the central bank would be able to hold off on rate hikes.
Turning to the monthly performance of the S&P 500 (SP500) sectors, with the exception of Energy, all 11 sectors ended in the red. Utilities saw an outsized loss of more than 6%, while Technology closed out the month with a fall of about 1.5%. See below a breakdown of the performance of the sectors as well as their accompanying SPDR Select Sector ETFs from July 31 close to August 31 close:
#1: Energy +1.27%, and the Energy Select Sector SPDR ETF (XLE) +1.65%.
#2: Communication Services -0.40%, and the Communication Services Select Sector SPDR Fund (XLC) -1.54%.
#3: Health Care -0.80%, and the Health Care Select Sector SPDR ETF (XLV) -0.70%.
#4: Consumer Discretionary -1.30%, and the Consumer Discretionary Select Sector SPDR ETF (XLY) -1.74%.
#5: Information Technology -1.45%, and the Technology Select Sector SPDR ETF (XLK) -1.51%.
#6: Industrials -2.26%, and the Industrial Select Sector SPDR ETF (XLI) -1.98%.
#7: Financials -2.86%, and the Financial Select Sector SPDR ETF (XLF) -2.69%.
#8: Real Estate -3.04%, and the Real Estate Select Sector SPDR ETF (XLRE) -3.06%.
#9: Materials -3.46%, and the Materials Select Sector SPDR ETF (XLB) -3.30%.
#10: Consumer Staples -3.82%, and the Consumer Staples Select Sector SPDR ETF (XLP) -3.95%.
#11: Utilities -6.72%, and the Utilities Select Sector SPDR ETF (XLU) -6.13%.
Below is a chart of the 11 sectors’ YTD performance and how they fared against the S&P 500 (SP500).