Market Monitor: August Update
Headlines and Highlights
- Stocks log historically strong August: The U.S. stock market enjoyed its best month since April and best August since 1986 amid investor optimism about prospects for coronavirus vaccines and the economy. The S&P 500 Index powered to a fifth straight month of gains, notching six consecutive all-time highs in the month’s waning days. Small caps, value stocks and non-U.S. stocks all delivered August returns of close to 5% or more yet remained negative for 2020.
- U.S. economy advancing in fits and starts: The latest economic data shows the recovery making progress while still being held back by the coronavirus. Consumer sentiment readings in August were restrained and weekly jobless claims and unemployment both remained historically high. Yet new and existing home sales surged and manufacturing expanded in August at the fastest pace since December 2018.
- Fed to keep rates low for longer even if inflation exceeds target: In a policy shift aimed at boosting the economy, Federal Reserve Chair Jerome Powell said the Fed will allow inflation to run above its usual 2% target in the years ahead before taking steps to rein it in. Powell’s announcement signals that the Fed is focused more on maximum employment than inflation, which in any case has remained below 2% even with the central bank pumping trillions of dollars into financial markets during the pandemic.
Selected Market Returns
Sources: Morningstar, Altair Advisers
- The stock market continues to rightly look beyond 2020 and mixed current economic metrics. We share investors’ expectation of an improved outlook for 2021, given strong support from the Federal Reserve and apparent progress in developing coronavirus treatments and vaccines.
- The housing market’s newfound strength and the gains in manufacturing testify to the recovery’s durability even as some sectors languish amid ongoing challenges from the pandemic. However, the economy will not return to full strength without widely distributed vaccines and further government support in the meantime.
- Heightened market volatility is likely in the next two months as political noise intensifies and investors try to anticipate who will control the White House and Senate. Ultimately, however, we believe the course of the pandemic and distribution of vaccines will be the biggest key to the direction of the economy and markets after November.
- The Fed’s policy change on inflation targeting reinforces a monetary policy that already was highly accommodative and supportive of the economy and stock market. Markets mostly have expected the Fed to be willing to tolerate higher inflation to reduce unemployment. Yet we view it as a shift with positive implications and limited short-term risk, since no surge in inflation appears imminent under current economic conditions.
- The dollar’s continuing weakness speaks to a more optimistic outlook for the global economy. The greenback has fallen against other leading currencies in each of the last five months and 9% since reaching a three-year high in March.
The material shown is for informational purposes only. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, and actual results may differ materially from those anticipated in forward-looking statements. As a practical matter, no entity is able to accurately and consistently predict future market activities, and all investments are subject to the risk of loss. While efforts are made to ensure information contained herein is accurate, Altair Advisers LLC cannot guarantee the accuracy of all such information presented. Material contained in this publication should not be construed as accounting, legal, or tax advice