Monthly Market Commentary

These monthly market commentaries share a synopsis of the U.S. financial markets with intelligent insights.

After months of trying to interpret data, signals, formal and informal comments to predict if and when the US Fed would begin to cut its policy rate, Fed Chair Powell made it pretty clear in late August that the Fed is ready to act, subject of course to “incoming data, the evolving outlook, and the balance of risks”.  Equity and bond markets reacted favorably to his comments which is not surprising given how much weight has been placed on the next Fed decision.  Over the last 18 months, economists and market forecasters have thought of Powell as either their friend or foe, with some being supportive of his hesitancy to cut rates sooner and others warning the Fed has waited too long and a recession is looming. Most investment markets have already priced in the impact of future rate cuts.  US Equity markets are up 10-20% in 2024 reflecting both a resilient economy and an expectation of the eventual unwinding of the Fed’s inflation fighting policy moves.  Across US bond markets, the impact recently has been more noticeable, with the 2Yr US Treasury rate falling 80bps since July 1, spurring a 3.8% QTD return for the Bloomberg Aggregate index.  Though the yield curve remains inverted, the spread between the 2Yr US Treasury rate and the 10Yr US Treasury rate was close to flat at the end of August. 

It has been a long summer for those who try to forecast Fed policy.  At different points it seemed the Fed was signaling it was in no rush to cut rates based on stronger economic data.  Then views shifted to “the Fed needs to get ahead of a growing concern about a recession looming.”  The call to action boomed when a 24-hour flash crash briefly raised expectations that the Fed should cut rates by 50bps or more by September to help avoid a market meltdown.  Fortunately, the “emergency” situation was very short-lived and market sentiment moved back to anticipating more clarity from the Fed during their Jackson Hole meeting. 

Here are a few observations about what occurred across the public markets during the month.

 Overall

• The S&P 500 Index was up 2.4% in August, up 19.5% YTD, and up 27.1% on the trailing one-year. 
• The MSCI EAFE Index was up 3.3% in August, up 12.0% YTD, and up 19.4% on the trailing one-year.
• The Bloomberg Aggregate Bond Index was up 1.4% in August, up 3.1% YTD, and up 7.3% on the trailing one-year.

Domestic Equity

• Equity market returns ended mainly in the positive in August after a worse-than-expected July jobs report rattled markets. Jerome Powell mentioned at the annual Jackson Hole Symposium, that the time has come for interest rate cuts, causing investors to price in a nearly 100% chance the Fed will lower rates in September.  
• After a historic month from small-cap stocks in July, large-cap stocks went back to outperforming small and mid-cap stocks.  71% of the stocks in the S&P 500 showed gains for the month, with 52 stocks rising by double-digit percentages. Large-cap value stocks outperformed growth stocks as semiconductor and tech stocks lost some steam.              

International and Global Equities 

• Foreign-developed stocks outperformed US stocks, driven by strong returns from Switzerland (4.77%), Canada (4.05%), and France (3.79%). Growth and large-cap stocks outperformed value and smaller-cap stocks in most regions.    
• Emerging markets returned a positive gain for the month but underperformed developed markets. Brazil rallied as the economy saw its biggest foreign inflow since last year ($1.78B) due to rising bets that the Fed will begin to cut rates.   

International and Global Equities

• Foreign-developed stocks outperformed US stocks, driven by strong returns from Switzerland (4.77%), Canada (4.05%), and France (3.79%). Growth and large-cap stocks outperformed value and smaller-cap stocks in most regions.    
• Emerging markets returned a positive gain for the month but underperformed developed markets. Brazil rallied as the economy saw its biggest foreign inflow since last year ($1.78B) due to rising bets that the Fed will begin to cut rates.   

Fixed Income Markets

• Bond market indices were positive during August, benefitting from the Fed’s signal that they will be kicking off a series of interest rate cuts in September. Moreover, the inverted yield curve between the 2-year and 10-year Treasury yields, which began inverting in June 2022, is now close to normalizing.

Specialty Markets

• REITs continue to post positive returns month over month, leading to a +10% gain for the year. Commodities have faced ongoing challenges in the latter half of the year. 

US Equity Sectors

• Sector performance was largely positive, with the exception of Consumer Discretionary and Energy. Consumer Staples emerged as the top-performing sector, driven by significant gains from key stocks such as Costco (8.3%), Coca-Cola (7.8%), and General Mills (7%).

Sincerely, 

Scott Krase