Equity markets were resilient in August, surviving an early selloff to end the month higher. The S&P 500 advanced +2.4% for August, with the blue-chip index nearing a gain of +20% on the year.
Overseas stocks added another +2.8% on the month, with the MSCI ACWI ex-US index now up +11% year-to-date as the performance gap with domestic stocks continues to narrow.
Bond prices rallied for a third consecutive month, with yields driving lower on Fed Chair Powell’s acknowledgment at Jackson Hole that the time has finally come for rate cuts. The Bloomberg Aggregate Bond Index gained +1.4% in August and is up +3.1% YTD.
The Bloomberg Commodity index was flat on the month, where once again higher gold prices were offset by lower oil prices.
Our proprietary Three Dials readings remain unchanged through the end of August, as we outline below:
- Market Sentiment and Momentum: (Positive ➕)
After flirting with a correction in the first week of trading, August’s strong rally off the lows suggests that technical support is very much intact for the current uptrend. However, headwinds include overly bullish individual investors and the looming “September Effect”, as September has historically been by far the worst performing month for stocks.
On balance, our Momentum Dial remains Positive despite the potential for volatility ahead.
- Economic Fundamentals: (Negative ❌)
Dollar General became the latest company to cite a financially constrained consumer as it missed Q2 earnings expectations, with its core lower-income customer base feeling particularly burdened by high-interest credit card debt. Meanwhile, pending home sales dropped to their lowest level on record as potential homebuyers wait for clarity on interest rates and the election.
Due to these persistent economic challenges, our Fundamental Dial remains Negative.
- Valuation: (Negative ❌)
Perhaps no company exemplifies the current environment of stretched valuations like AI-darling Nvidia, which beat Wall Street expectations on both sales and earnings for Q2 while guiding future revenues higher. Still, the stock fell after their report, perhaps due to investors recognizing a potential ceiling on the company’s meteoric rise. With broad price-to-earnings ratios well above average, our Valuation Dial remains in a Negative position.
Our composite Three Dials reading remains in a Moderately Defensive position through the most recent month-end, with two dials Negative and one dial Positive.
Sources: Morningstar
Disclaimer: Our intent in providing this material is purely for informational purposes, as of the date hereof, and may be subject to change without notice. This article does not intend to constitute accounting, legal, tax, or other professional advice. Visitors and readers should not act upon the content or information found here without first seeking appropriate advice from a trusted accountant, financial planner, lawyer or other professional.
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