Stocks rise in August for the fifth month in a row.
August was a good month for stocks. In the U.S., large-cap stocks were up 7.19%, closing the month at an all-time high (S&P 500). Small-caps were up too, by 3.99% (S&P 600). International stocks also had a good month. Developed-market stocks rose 5.14% and emerging-market stocks 2.21% (MSCI EAFE and Emerging Markets indexes). Interest rates rose over the month, although they remain very low by historical standards. But this led bond prices to fall, with the Bloomberg Barclays Aggregate Bond Index down by 0.81%. It was a relatively calm month for the stock market, with the S&P 500 moving by +/- 1% on only three days.
Why it happened.
The economic news in August was mixed. The unemployment rate, reported at the start of the month, fell to 10.2% from April’s peak of 14.7%. But the number of new claims for unemployment insurance has remained stubbornly high at around a million per week. Nonetheless, July retail sales exceeded their level from before the coronavirus crisis, and the housing market has been strong, buoyed by low interest rates.
Talks in Congress about continuing the economic stimulus made little progress, and the $600 addition to unemployment benefits expired on July 31. As the extra benefits expired, there were indications of a decline in consumer confidence. The Federal Reserve noted that there is still uncertainty in the economic outlook and reiterated that it would keep interest rates low for the foreseeable future in order to support the economy.
And yet given all that, stocks had a very strong month. In this month’s sidebar, we look at how markets and the economy are related – and why they can seem to be on different tracks.
What this means for you.
Given the continued rise in stock prices, you probably experienced gains in your portfolio last month. And the greater your allocation to stocks, the greater those gains would have been. But don’t be tempted to change your asset allocation based on one month, or even five months of good returns. Nor should you assume that markets won’t fall in the future. Considerable uncertainty remains as the economy recovers from the current crisis, and new and different challenges will present themselves as well. So, keep in mind that you are saving for the long term, and your investments need to be based on that perspective. That means you need to honestly determine your own individual risk tolerance and invest accordingly. If you need help doing that, please give us a call.
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