Summer Bummer

Summer bummer.  The August rally in stocks fizzled on the last day of the month as investors look forward to a historically bumpy September.  Teslas may not be in every driveway, but the company stock is on every investors mind as it powered forward to become the 7th most valuable company in the US.

N O T E W O R T H Y

Reason for the season. Yesterday was kind of a bummer. Though there are some 20 days or so before the official end to summer, many of us use the passing of August into September as the unofficial boundary between summer and fall, allowing white buck shoes to remain in the back of the closet only to see light again sometime around next Easter… assuming the weather participates (hey, I am a long-term optimist).  For investors, labor day seems to be a threshold after which focus switches to elections and the close of the third quarter.  Younger kids head back to school while older kids are already off at universities leaving us to focus on the business at hand:  how to close off the year with a bang, financially that is.  Its shoulder to plough, nose to grindstone, longer commutes… you know, all the typical platitudes.  HOWEVER, and that is a big “however”, this is no typical year.  Many kids are not going to start a regular school schedule next week and it is questionable if college-aged kids will be able to remain on campus for the whole semester.  Oh yeah, and many of us are still working from home.  Need I mention the global COVID crisis?  There is always some sort of election or another in November, but this one holds a Presidential election in store for us… I am sure you noticed.

August was a good month for stocks… stock indices that is.  For the month of August, the S&P500 rose by +7.1%, the Dow added +7.59%, and the Nasdaq clocked in a gain of +9.59%.  Those are the largest gains for those indexes since 1984, 1986, and 2000, respectively.  Remember those years?  Those were the good days… if you like bubbles. So, you could say that the indexes had a good month, but more importantly, what can we expect for September?  Well, historically, September tends to be a tough month.  Looking back to 1896, the Dow Jones Industrial Average, for instance, has lost just over -1% on average for September.  Research conducted by Barron’s shows that September returns for the Dow and S&P following August gains of greater than +5% have an 80% and 60% chance of declines, respectively.  The good news is that the same research found that size of the losses after large August gains is less than the overall average, with the S&P500 and Dow only giving up -0.4% and -0.5% for those Septembers. I have saved the best news for last.  The research shows that after a big August, the Dow, S&P, and Nasdaq all return greater than average returns in the final quarter, specifically +12%, +11%, and +9%.  Of course, I must remind you that averages are tricky things and in any given year the actual numbers can be far higher… or lower.  Further, I must also remind you that stock markets are vagrant and rarely do what is convenient for our portfolios… or egos.  Did I mention that this is no typical year?  I am sure I did...

THE MARKETS

Stocks gave up ground in the final session of the month as investors braced for a typically tough upcoming month.  The S&P500 slipped by -0.22%, the Dow Jones Industrial Average dropped by -0.78% (with less help from Apple after the stock split), the Russell 2000 gave up -1.04%, and the Nasdaq Composite Index rose by +0.68% (thanks in part to gains in Apple and Tesla). Bonds advanced and 10-year treasury yields lost -2 basis points to 0.70%.

NXT UP

- Markit Manufacturing PMI (Aug) is expected to be 53.6 in line with prior flash estimates.

- ISM Manufacturing PMI (Aug) may have risen to 54.8 from last month’s reading of 54.2.

- Construction Spending (July)  is expected to have grown by +1.0% compared to June’s -0.7% pullback.

- Fed Governor Lael Brainard will speak today.

daily chartbook 2020-09-01