Energy Led in August as Higher Rates Dragged The Stock Market Lower

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The stock market pulled back in August after a five-month rally. Energy was the only positive sector, thanks to rising oil prices.

The S&P 500 was down 5.5 percent at its low on August 18, but rebounded to end the month with a 1.8 percent decline. More than two-thirds of the index’s members lost value as a lack of catalysts sidelined buyers. Still, the index held its June low and remained above its peak from August 2022. Has old resistance become new support?

Higher borrowing costs weighed on the market in August. The yield on the 10-year Treasury note climbed to its highest level since November 2007 as the government issued new debt and strong economic data reduced the odds of rate cuts soon. However, yields reversed after forming a potential “double top” pattern. Further downside in yields could support stocks.

Last month also saw big drops in sentiment gauges published by the American Association of Individual Investors and the National Association of Active Investment Managers. That may suggest money remains on the sidelines, with potentially limited selling pressure.

S&P 500, daily chart, showing key levels and indicators.

Energy stocks quietly pushed higher as tightening inventories lifted crude-oil prices. The sector could remain in focus with Saudi Arabia continuing to limit exports.

There are several potentially important events this month. The week beginning on September 11 is especially active. Apple (AAPL) is expected to unveil new iPhones and key inflation numbers are due. The following week brings an important Fed meeting. See the table below for more.

Big Movers in August

Top Gainers in the S&P 500 Last Month
Arista Networks (ANET)+26%The cloud-computing stock beat consensus estimates after introducing new Artificial Intelligence (AI) services.
Eli Lilly (LLY)+22%The pharmaceutical maker jumped to new record highs after strong demand for its Mounjaro drug pushed quarterly results past expectations.
Global Payments (GPN)+15%The payment-processing company’s quarterly results beat estimates as costs fell. Full year guidance was also raised.
Axon Enterprise (AXON)+15%The provider of Tasers and policing software beat earnings and revenue estimates.
CDW (CDW)+13%The IT distributor reported better-than-expected quarterly results.
Source: TradeStation Data
Top Decliners in the S&P 500 Last Month
SolarEdge Technologies (SEDG)-33%The alternate-energy stock issued weak results and guidance as higher interest rates hurt demand.
Insulet (PODD)-31%The diabetes company issued weak guidance amid competition from weight-loss drugs like Eli Lilly’s Mounjaro.
ResMed (RMD)-28%The medical-device maker missed consensus estimates as margins narrowed.
Etsy (ETSY)-28%The e-commerce stock fell despite beating estimates as analysts questioned its valuations and long-term growth prospects.
DXC Technology (DXC)-25%The IT consultancy reported earnings and revenue below Wall Street’s expectations.
Source: TradeStation Data

Sector Watch

Energy+1.6%
Health Care-0.7%
Technology-1.5%
Communications-1.5%
Consumer Discretionary-1.7%
S&P 500-1.8%
Industrials-2%
Financials-2.7%
Real Estate-3.1%
Materials-3.3%
Consumer Staples-3.9%
Utilities-6.1%
Source: TradeStation Data

Key Economic Events in August

Below are some key economic events from last month.

  • Fitch cuts U.S. credit rating: Fitch Ratings cut the U.S.’s sovereign credit rating from AAA to AA+. The agency cited growing debt loads and political uncertainty. (8/1)
  • July inflation matches estimates: The consumer price index (CPI) rose 0.2% in July, matching estimates. Rising shelter costs continue to drive inflation. (8/10)
  • Retail sales surprise to the upside: Retail sales increased by 0.7% in July, nearly twice the amount expected by economists. E-commerce and restaurants drove the increase. (8/15)
  • Powell walks a middle line at Jackson Hole: Federal Reserve Chairman Jerome Powell continued to say inflation was “too high” in his annual Jackson Hole, Wyoming, speech. But he also said progress had been made against prices and noted policymakers were “navigating by the stars under cloudy skies.” (8/25)

What Experts Are Saying

Below are some noteworthy commentaries.

  • JPMorgan retracted its prediction of a recession in 2023 because the economy is growing at a “healthy pace.” The move followed successful resolutions of bank runs and the debt ceiling earlier in the year. Bank of America made a similar call two days earlier. (8/4)
  • Moody’s lowered the credit ratings on several U.S. banks, citing narrower margins between funding costs and lending rates. Some midsized lenders were placed on review for potential downgrade. Fitch Ratings took a similar step one week later. (8/8)
  • Goldman Sachs expects the Fed to start cutting interest rates in the second quarter of 2024. The economists, led by Jan Hatzius, cited milder core inflation and the potential need to soften restrictive policy. (8/13)
  • Wells Fargo sees yearend gains in megacap growth stocks like Apple and Microsoft. Dan Ives of Wedbush made a similar call six days later, anticipating increased growth in Artificial Intelligence (AI). (8/23)
  • Bloomberg News reported that U.S. Treasuries “are proving irresistible to some investors” because of “attractive yields.” The article said that bonds may appreciate if inflation slows. (8/28)

Popular Futures Contracts in August

ProductCurrent
Month
ExpirationNext
Month
1-Mon%
S&P 500 E-Mini (@ES)ESU23 (Sept)9/15/23ESZ23-2.1
Nasdaq-100 E-Mini (@NQ)NQU23 (Sept)9/15/23NQZ23-2%
Dow Jones E-Mini (@YM)YMU23 (Sept)9/15/23YMZ23-2.5%
Russell 2000 E-Mini (@RTY)RTYU23 (Sept)9/15/23RTYZ23-5.6%
Source: TradeStation Data

Newsworthy Events This Month

DateEventWhat to Watch For
Fri 9/1Non-farm payrollsJob-market conditions: unemployment, wages, hours worked
Tue 9/12Apple Product EventPotential launch of iPhone 15, new Apple Watch
Wed 9/13Consumer price indexWill inflation continue to ease?
Thu 9/14Retail SalesStrength of consumer spending
Wed 9/20Fed meetingInterest-rate statement, economic projections, press conference

Security futures are not suitable for all investors. To obtain a copy of the security futures risk disclosure statement Investment and Trading Disclosures Booklet – Futures.

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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them apprised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.