Stocks close a volatile month down.

What happened.

August was a volatile month in stock markets around the world.  Large-cap stocks, measured by the S&P 500 Index, moved by over +/- 1 percent on 11 of the 22 trading days.  By the end of the month, all the major classes of stocks had fallen.  At home, large caps were down by 1.58 percent and small caps by 4.51 percent (S&P 500 and 600 indices).  International stocks were also down: developed-market stocks fell by 2.59 percent and emerging-market stocks by 4.88 percent (MSCI EAFE and Emerging Markets indices).  Interest rates were also down for the month, boosting bond prices, which rise when interest rates fall.  The Bloomberg Barclays Aggregate Index rose by 2.59 percent.

Why it happened.

One word defined the month in the markets:  trade.  As threats of tariffs, and then signs of international cooperation, bounced back and forth between the US and China, stocks lurched up and down.  In this month’s sidebar, we look at the effects of tariffs on consumers and companies.  Stocks respond negatively to the prospect of tariffs because they may eventually harm companies’ earnings.  On days when the news reported that tariffs were more likely, stocks fell, and on days when negotiations seemed likely, they rose.

Other factors affected markets in August.  The prospect of a global economic slowdown unsettled stock markets.  But signals that central bankers around the world would respond by lowering interest rates to strengthen their economies helped markets.  These signals also led interest rates to decline to unusually low levels:  the US Treasury 30-year yield (the rate the US government must pay to borrow for 30 years) fell to a record low.  Meanwhile, there was some solid data on the US economy, with unemployment at record lows and continued strength in consumer spending providing support for the overall economy.

What this means for you.

At Financial Engines, we build a portfolio tailored to your situation and preferences.  Your portfolio will probably have seen a negative return in August.  The higher the risk of the portfolio—which means a higher share of your portfolio invested in stocks—the more negative the return will have been.  With a lower-risk portfolio, you will have been less affected by the fall in stocks and will have benefited more from the rise in bonds.  It’s always good to use months such as August to make sure you’re comfortable with the amount of risk you’re taking in order to achieve your retirement goals.  What will happen in markets is unpredictable, but you can choose how much risk you are willing to take with your portfolio.  Log into your account or speak to your advisor to reassess how much risk you’re taking and make any necessary adjustments.

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