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GLOBAL MARKET COMMENTARY – September 5, 2020

Updated: Oct 5, 2020



August Makes 5 Straight Positive Months

Global equity markets continued their march forward and turned in a very positive August, pushing two of the major U.S. equity markets to new highs and recording five straight positive months as:

  • The DJIA finished August up 7.6%

  • The S&P 500 finished August up 7.0%

  • NASDAQ finished August up 9.7%

August will be remembered for the S&P 500 passing its pre-COVID level early in the month, in addition to setting these records:

  • The DJIA recorded its best August since 1984

  • The S&P 500 recorded its best August since 1986

  • NASDAQ recorded its best August since 2000

It seems as if the mix of negative and positive news during the months of June and July gave way to mostly positive economic news in the month of August – which seemed to fuel or at least validate – the markets continued march forward.

In terms of monetary policy, one big announcement that has helped support market momentum was the Fed letting their inflation target drift a bit, meaning that monetary policy will remain supportive for the foreseeable future. Besides supporting equity markets, this might have caused stability in oil prices (to a small degree) and kept a lid on volatility in August, as investors saw:

  • Volatility, as measured by the VIX, trending slightly up during August from 24 to 25

  • The U.S. oil benchmark, West Texas Intermediate, trading in a narrow range throughout August, ending at $43/barrel.


Market Performance Around the World

After gains in most asset classes over the past four months – on the heels of devastating losses to markets around the world in March – investors saw August bring more gains to most equity markets, although bond indices retreated a bit.

Of the 35 developed markets tracked by MSCI, all were positive in August, with MSCI Japan leading the way with a monthly gain of 7.6%.


Developing Markets Index Returns August 2020


Sell in May and Go Away? Not This Year.

Remember the notion of “Sell in May and Go Away?” Well, if you subscribed to that so–called market strategy in 2020, here is what you would have missed:

The S&P 500 was up:

  • 4.5% in May;

  • 1.8% in June;

  • 5.5% in July; and

  • 7.0% in August.

And don't forget, those four months of S&P 500 gains were on the heels of April's 12.7% increase. That's five consecutive up–months for the S&P 500. If you need more stunningly good news, consider this:

  • Over the past 5 months, the S&P 500 is up 35.4% – its best five–month run since October 1938.

The notion of “Sell in May and Go Away” seems downright absurd right now, doesn't it?


Positive Economic Data

While the past four months saw the stock markets stubbornly claw back much of the COVID-19–bear–market–losses, August seemed like an exclamation point emphasizing how forward–looking markets really are. And this was done with consistently lower volatility, stable oil prices, and more positive versus negative economic news.

That being said, the positive economic news can be a bit misleading, in that it should be viewed from the perspective of very depressed levels given the havoc that COVID unleashed on our economy.

Here are a few of the major economic themes investors received in August:

  • Highest Hope from Home Builders since 1998. According to the NAHB, builder confidence for newly-built single–family homes increased seven points to 78 in August (50 is considered breakeven). For perspective, the index stood at 37 in May. Further, the HMI Index now stands at its highest reading in the 35–year history of the series, matching the record that was set in December 1998.

  • Retail Sales Best Reading Since Late March. Based on the release from August 18th, the Johnson Redbook Index reported that retail sales showed the best reading since that COVID–induced panic buying in late March and early April.

  • Manufacturing is Improving. On August 25th, the Richmond Fed reported that manufacturing activity in the Fifth District continued to strengthen in August as: “The composite index rose from 10 in July to 18 in August, as all three components – shipments, new orders, and employment – increased.” The Philadelphia Fed reported similar findings just five days before.

  • Corporate Earnings are Surprising. August also brought the end of the second quarter earnings season, and there were more positive earnings reports than expected. In fact, according to research firm FactSet, 84% of companies beat expectations and many are revising their guidance for higher earnings next quarter.


Asset Class & Style Performance

The month of August went a long way to bringing investors back from pre-COVID levels, but some asset classes and styles still have more ground to make–up. Maybe more importantly, however, is that it is worth remembering that the S&P 500 passed its pre–COVID level in mid-August on its way to new highs and NASDAQ keeps hitting new highs almost every day (well, not every day, but it seems like that).

All that being said, August exacerbated a few trends for sure. Namely, the distance between Growth and Value is very wide – and getting wider. The gulf between Large and Small–Caps is still significant, despite a mini–rally in Small–Caps for the month of August. And a glass–half–empty investor can't help but mention that Small–Caps are still painted red for 2020. Commodities put a dent in their very red YTD numbers, but still have 9% to make up before they can change their color to green.


Sector Performance

The overall trend for sector performance for the month of August was mostly positive, with 8 of the 11 sectors ending the month of August higher.

Yes, August's sector performance generally continued to erase the negative numbers from earlier in the year. But, examining the YTD sector returns shows that there are still quite a few sectors that have a lot of ground to cover to get back to positive returns – especially the Energy, Real Estate and Financials sectors.

Reviewing the sector returns for just the month of August 2020 and YTD through August 31, 2020, we saw that:

  • 8 of the 11 sectors were painted green for the month of August

  • The Energy sector was once again the worst performer for the month as it dropped a little less than 3%, despite the price of West Texas Intermediate crude advancing about $3/barrel during the month

  • The differences between the best performing and worst performing sectors in August was once again dramatic, with Information Technology gaining almost 15% and Energy losing almost 3%

  • On a YTD basis, the differences between the best and worst performing sectors is even more dramatic, as Information Technology sector is up over 34%+ YTD and Energy is down a whopping 40%+

  • At the end of June, there were only 2 sectors with positive YTD performance – Information Technology and Consumer Discretionary. At the end of July, there were 2 more – Health Care and Communication Services. At the end of August, we added Consumer Staples and Materials to the positive YTD column


Here are the sector returns for shorter time periods:

This chart is for illustrative purposes only and does not represent the performance of any specific security. Past performance cannot guarantee future results. Source: Standard and Poors


Changes to Dow Jones Industrial Average

While the Dow has always contained the heavyweights, the exact composition of the Dow has changed at various times over the last 120 years, even though most individual stocks stay in the Dow for years.


As the economy moved from heavy industry to consumer goods to technology, the Dow's membership has changed to reflect the market. But when one company enters the Dow, another has to leave.

General Electric was the last of the 12 originals remaining in the Dow Jones Industrial Average.


Although it was removed from the Dow for 6 months in the 1890s and from 1901–1907, GE had been a continuous member of the Dow since 1907. But in June 2018, the stewards of the DJIA announced that GE would be replaced by Walgreens.

That left Exxon Mobil, a member since 1928, as the oldest member of the Dow. But on August 31, 2020, prior to the opening of trading, Exxon Mobil, Pfizer and Raytheon Technologies are out of the Dow and Salesforce, Amgen and Honeywell are in.

The move was made to “diversify the index by removing overlap between companies of similar scope and adding new types of businesses that better reflect the American economy.”


The current membership of the DJIA is as follows:

Nothing contained herein shall constitute an offer to sell or solicitation of an offer to buy any security. Material in this publication is original or from published sources and is believed to be accurate. However, we do not guarantee the accuracy or timeliness of such information and assume no liability for any resulting damages. Readers are cautioned to consult their own tax and investment professionals with regard to their specific situations.


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