How Did Stocks Do in August?
The broader markets crumpled in March on fears that the coronavirus was going to cobble Wall Street. COVID-19 has wreaked havoc on the global economy, but the markets have been going in the opposite direction, with investor optimism fueled by encouraging economic data and the Federal Reserve’s loose monetary policy.
The result? The S&P 500, Nasdaq, and Dow Jones Industrial Average just reported their best August in more than 30 years. Is that optimism misplaced though? History shows that September is not a good month for stocks.
Over the last five months, the stock market has been incredible and recently capped off an amazing August. During the typically quiet month, the Dow Jones Industrial Average increased 7.6%; it’s best August since 1984.
The Nasdaq advanced 9.6%; it’s best August since the heady days of the dotcom era in 2000. The strong growth on the Nasdaq has been driven by the coronavirus pandemic, with more and more people working from home and cloud computing trends. Year-to-date, the Nasdaq is up more than 30%.
And the S&P 500 had its best August since 1986, climbing 7%. The S&P 500 also saw seven record highs in August and it was the fifth consecutive months of gains. There’s a caveat though.
The strong gains are mainly a result of the biggest tech giants. The S&P 500 is a market capitalization weighted index, which means Alphabet Inc. has more of an impact on the direction of the S&P 500 than Visa Inc. does.
To put that into perspective, just six tech stocks (Netflix Inc, Microsoft Corporation, Facebook Inc., Alphabet, Amazon.com Inc., and Apple Inc.) are responsible for more than one quarter of the S&P 500s value. Take those stocks out of the equation and the S&P 500 is actually in negative territory.
How Will the Stock Market Perform in September?
It’s impossible to predict how stocks will perform. The strong August gains prove that point. Global recessions aside, September isn’t usually the best month for stocks anyway. Seasonally, September is the worst month of the year for stocks.
When the stock market reports a more than 5% gain in August, the Dow Jones typically drops 80% of the time in September. The Nasdaq and S&P 500 notch up losses of 55% and 60%. But as we’ve seen, stocks are not exactly doing what Wall Street thought they would. So history may not be as reliable in the coronavirus pandemic environment.
Again, the S&P 500, Dow Jones, and Nasdaq are soaring in spite of bad economic data. The U.S. Labor Department reported that another one million Americans filed jobless claims. With many temporary job losses turning permanent, the number of Americans receiving some form of unemployment aid has soared to almost 27 million.
Moreover, a large number of major American companies are announcing layoffs, this includes American Airlines, MGM Resorts International, salesforce.com, Schlumberger, and Bed Bath & Beyond Inc. And other well-known names are shuttering their doors. None of which bodes well for the labor market or economy.
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The coronavirus pandemic shut down the global economy, resulting in a global recession, but the stock market continues to defy odds, and just had its best August since the 1980s. Investors, though, aren’t focused on how or what the economy is doing. They are putting their faith in the Federal Reserve. This may not be the best investing strategy. That said, the trading professionals at Learn-To-Trade.com understand that this environment is actually providing investors with opportunities to profit.
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