Stocks generally declined in August but still finished the first 8 months of the year with respectable gains. Bond yields marched higher (bond prices move inversely to bond yields) as the Fed continued to signal a higher-for-longer interest rate policy. During the month, rating agency Fitch downgraded the U.S. credit rating from AAA to AA+ effectively matching S&P’s downgrade 12 years ago.
Investors may be concerned that the August pullback is the start of a lasting contraction, however, this is just the first 5% pullback we’ve experienced in 2023. As Raymond James Chief Investment Officer Larry Adam pointed out, “historically, the S&P 500 has experienced three to four 5% pullbacks a year.” In other words, what we’re seeing is nothing out of the ordinary.
Year to date, the Dow is up nearly 5%, the technology-heavy NASDAQ is up about 34%, and the S&P 500 is up a little more than 17% (it’s worth noting that the top 8 companies in the S&P 500 are all technology companies and represent nearly 28% of the entire index). International stocks are up high single digits on the year. Bonds are still positive on the year despite higher interest rates.
In the months ahead, I expect more headlines surrounding the September 30th funding deadline for the government as Congress works to avert a government shutdown. As with most things political, I expect posturing from both sides but an eventual resolution, likely in the 11th hour.
Looking ahead, I encourage investors to avoid the temptation to forecast the economy or time the market. Instead, focus on why you’re investing, what you’re investing for and your time horizon. If markets do contract further, consider adding to quality businesses in your investment portfolio at reduced prices.
Disclosures
The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Jeff DeLarme and not necessarily those of Raymond James. Past performance may not be indicative of future results. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. The information contained in this email does not purport to be a complete description of the securities, markets, or developments referred to in this material. Investing involves risk and you may incur a profit or loss regardless of strategy selected.
The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal.
Bond prices and yields are subject to change based upon market conditions and availability. If bonds are sold prior to maturity, you may receive more or less than your initial investment. Holding bonds to term allows redemption at par value. There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices generally rise.