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Monthly Market Update - August 2015

Returns in August were disappointing. Stocks dropped sharply in the middle of the month but were able to recover a portion of the losses. The S&P 500 Index ended the month down 6.0% on concerns over China’s economy and the pending Fed rate hike. International stocks also had a rough month with international large falling 7.4% and emerging markets down 9.0%. Bond returns were relatively flat as the 10‐year Treasury hovered around 2.2%.

Economy

  • The second estimate of second‐quarter real GDP growth was 3.7%, up from 2.3% the month prior. The increase
    reflected higher exports and consumer spending, while the strength in the U.S. dollar limited growth.
  • Inflation (CPI) was up 0.1% for the month of July, keeping the year‐over‐year inflation rate at 0.2%. Inflation was lifted by slightly higher gasoline and food prices.
  • Job gains in August came in below expectations at 173,000 but the unemployment rate fell to 5.1%, down from 5.3%.

Stocks

  • The S&P 500 Index dropped 6.0% and U.S. small stocks (Russell 2000 Index) fell 6.3%. Large cap sector returns were negative across the board, with healthcare falling the most (‐7.9%).
  • Developed international large cap stocks declined 7.4% in August. International small stocks fared slightly better with a 4.4% decline and are still up 6.2% year‐to‐date.
  • Emerging markets were slammed with a 9.0% decline as China and Brazil weighed on the index.

Bonds

  • The 10‐year U.S. Treasury yield remained relatively unchanged at 2.2%.
  • Intermediate‐term bonds returned ‐0.1% and international bonds returned ‐0.4%. TIPS fell 0.8%.

Alternatives

  • REITs sank 6.0%, but commodities fared better with a 0.9% decline.

Don't Sell Your Retirement

Yikes! If you were anxiously watching the stock market on Monday, August 24th, you were not alone. The S&P 500 dropped over 5% within the first hour of trading on what is now being called Black Monday. Retirement account trading spiked as money flowed from stocks to bonds and trading was seven times the normal level.

It may be hard to believe, but these drops are normal. After several years of such low volatility it is easy to forget. But the S&P 500 did not have a correction (decline of 10% or more) in over three years, and on average it has one every year. Many pundits have been saying for a long time that a decline like this was overdue, but the problem is that no one knew when it would happen.

There are many things we can attribute the volatility to. The Fed is considering its first rate hike since 2006, China devalued its currency and is (attempting to) prop up their stock market, and the price of oil has been plummeting. As new bits of information come out regarding these catalysts, the market will continue to fluctuate accordingly.

Worrying about drops like these is completely normal. It can be hard to understand that these short‐term fluctuations are insignificant to long‐term returns as you watch your portfolio bounce around. But keep in mind that you have an asset allocation specifically designed to help you reach your goals, even though there may be some bumps along the way.

Sources: Bureau of Economic Analysis (BEA), Federal Reserve, Institute for Supply Management, JP Morgan, Morningstar Direct, Standard and Poor's, Wells Fargo, Yahoo! Finance, BofA Merrill Lynch, wsj.com

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  • Monthly Market Update - August 2015