An eventful August brings mixed market results.
The past several months were strong for stocks around the world. But August saw both an increase in volatility and mixed returns. Large-cap U.S. stocks (S&P 500 index) managed a +0.31% return, after dipping as much as -1.81% earlier in the month. Mid- and small-cap stocks fell, returning -1.53% and -2.57% respectively (S&P 400 and 600 indices). They both also saw considerably lower returns mid-month. International developed-market stocks closed the month basically right where they started and were down -0.04% (MSCI EAFE index). Emerging-market stocks saw the best returns in August by closing the month up +2.23% (MSCI Emerging Markets index). Meanwhile, bonds edged upward with the Barclays Aggregate index returning +0.90%, in response to interest rates falling over the month.
August saw political turbulence, both at home and abroad. The month closed with the devastating floods in the Houston area in the aftermath of Hurricane Harvey. And this month’s events did have direct impact on markets. North Korea’s threats toward Japan and Guam early in the month hit Asia-Pacific stocks, though they largely recovered by month-end. Overall market volatility rose in August. There were three days last month that the S&P 500 moved by more than +/-1% (our gauge of volatility), two negative days and one positive. This is a noticeable increase in volatility from recent calm months. But it’s useful to put this in perspective by looking back to the early months of 2016. With fears about the Chinese economy dominating the news at the time, there were 23 days of market moves greater than 1% in the first two months of 2016. Despite the geopolitical events, the backdrop to this month’s events is continuing positive economic news. We also continue to see moderate stances on monetary policy from the Federal Reserve and other central banks.
In light of the recent unsettling domestic and international events, how should you respond? In this month’s sidebar, we discuss how important it is to understand the level of risk you’re comfortable with. One thing you can count on is that there’ll be periods of increased uncertainty on your road to retirement. Having a risk level appropriate for your goals will help you sleep easier during those uncertain times. It’s also important to be aware of your options — for example, if you’ve been affected by Hurricane Harvey, the IRS is making it easier for you to take a hardship withdrawal from your employer-sponsored retirement plan. Hardship distributions are generally considered a last resort due to the tax implications and long-term effect on your retirement savings. If other options are available such as loans or personal savings, consider these first.
What this means for you.
Your portfolio’s return this month is likely to be quite modest. If you’re nearer to retirement or have told us about a preference for low risk, your portfolio will be more heavily invested in bonds, which were slightly up. If you’re further from retirement or have a higher risk preference, you’ll have more exposure to equities, which saw mixed results. We encourage you to tell us about your situation and preferences — please contact our advisors anytime.