Market Insights

Bears tried to hit the stock market in August, but were driven off by good news about the economy and earnings.

The S&P 500 began last month with a sharp selloff, initially falling more than 9 percent below its July close. But sellers quickly evaporated and the index ended the month up 1.2 percent. By some measures, it was one of the most volatile periods of all time. (See below for more.)

Technical forces seemed to explain the move: The index broke a trendline and the Japanese yen rallied. Investors also took profits in megacaps amid a lull in news.

Some pundits tried to link the selloff to a weaker economy, but then retail sales shot past expectations. Jobless claims stopped rising and the government revised second-quarter gross domestic product higher. Recession talk faded.

Perhaps even more importantly, the Federal Reserve gave dovish signals as inflation kept easing. That caused the market to expect even lower interest rates this year, according to CME’s FedWatch tool.

Optimism could additionally be building after a long period of negativity. NFIB reported the most confidence among small businesses in over two years, and the University of Michigan’s consumer sentiment index rose for the first time in five months. Consumer confidence, a separate report, inched past estimates as expectations improved.

Last month saw major changes in the market as investors shifted from large growth stocks toward sectors like consumer staples and real estate. Those companies stand to benefit from rate cuts. The rotation away from megacaps also strengthened the market’s overall breadth, which sent the advance/decline line to new highs.

Consumer staples broke out as several members rallied. Kellanova (K) was acquired by Mars and Coca-Cola (KO) rode momentum from quarterly results in July. Strong demand and increased profitability also drove Walmart (WMT) to new record highs.

Another interesting point: Berkshire Hathaway’s (BRK.B) market capitalization rose above $1 trillion. It was the first non-Nasdaq company to cross that threshold.

Energy was the worst performer. Traders are worried about Chinese demand for oil and more supply as OPEC+ countries increase production.

Charting the Market

August was an especially volatile month, with the S&P 500 traversing 532 points from low to high. It was the biggest swing since September 2022, according to TradeStation data.

CBOE’s volatility index was even more intense, whipsawing more than 51 points. That move trailed only the dramatic spike during the coronavirus lockdowns of March 2020.

Volatility later calmed and weekly fluctuations returned to the previous norms of less than 100 points.

The narrowing price action may remind some chart watchers of other moments since the rally began in November. The tight sideways consolidation patterns (marked with shaded boxes on the chart above) potentially reflect a lack of selling pressure.

Next is the price area around 5560, a weekly low in mid-July and a daily high as the index crashed. The S&P 500 tested and remained above that zone the last two weeks of August, which could suggest new support has developed near old peaks.

Some indicators of breadth may also appear favorable. For example, the Advance/Decline Line rose to a new high last week. TradeStation data also showed more than 450 members of the S&P 500 were above their 20-day moving averages last week. Similar readings, like June and November of 2023, were followed by upside in the broader market.

Finally, technology had a volatile month as money shifted to other sectors. However two catalysts may have the potential to revive interest in the sector. One is Apple’s (AAPL) product event on September 9, which is widely expected to feature a new AI-capable iPhone. Second, Nvidia (NVDA) has struggled amid delays to its Blackwell AI processors. Progress on the new super-computing chips could have a potentially big impact on tech stocks.

See the table below for more key events in September.

Big Moves in August

Sector Watch

Key Economic Events in August

Below are some key economic events from last month.

• Inflation goes under 3%:  The Consumer Price Index (CPI) rose 2.9 percent year-over-year in July. It was the first reading below 3 percent since March 2021, and 0.1 percentage point below forecasts. Vehicle prices and air fares helped slow inflation. (8/14)
• Autos drive strong retail sales: Retail sales rose 1 percent in July, more than triple economists’ forecasts. Motor-vehicles jumped by 3.6 percent. The report dispelled worries about a potential recession. (8/15)
• Consumer sentiment finally improves: Consumer sentiment rose for the first time in five months, beating expectations by a narrow margin. Increased optimism about politics boosted the survey, according to the University of Michigan. (8/16)
• Fed gets dovish for September: Minutes from the last Fed meeting said a “vast majority” of policy makers will probably support an interest-rate cut on 18 September 18. (8/21). Chair Jerome Powell added “the time has come for policy to adjust.” (8/23)

What Experts Are Saying

Below are some noteworthy commentaries:

• Small business confidence unexpectedly rose to its highest level since February 2022, according to NFIB. There was less worry about wage pressures and more optimism about sales. They also planned to build inventories, which could support economic growth. (8/13)
• Recession risks are “overstated” because “household finances remain solid,” according to UBS. The research note also cited the potential for rate cuts and estimated the S&P 500 will end the year at 5,900. (8/13)
• Earnings growth is accelerating, according to FactSet. The research firm noted that profits for S&P 500 companies increased by 10.9 percent in the second quarter. It’s the fastest pace since the fourth quarter of 2021 and up from the 9.1 percent growth expected in early July. (8/16)
• Risk appetite hit a one-year low in August, according to S&P Global. Worries about macroeconomic and political conditions drove the firm’s index of stock market investor sentiment to -10 percent last month, down from a multiyear high of 28 percent in May. (8/19)
• The Fed will begin an “easing journey” as focus shifts from fighting inflation to maximizing employment, Paul McCulley, former chief economist at PIMCO, told CNBC. He added that Jerome Powell’s Jackson Hole speech was “absolutely marvelous.” (8/23)

Popular Futures Contracts in August

Newsworthy Events This Month

Standardized Performances for ETF mentioned above

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