S&P 500 volatility in August reached the highest level since the first days of 2019 as what is usually a sleepy month for financial markets was punctuated by market-moving tweets from President Donald Trump amid an escalation of the U.S.-China trade war.
August started badly for the stock market when the U.S. announced on the first day of the month 10% tariffs on the remaining $300 billion of Chinese imports, sending the S&P 500 down 0.9% on the day and 4.6% lower through Aug. 5.
The market responded positively to the news on Aug. 13 that the U.S. would delay the implementation of some of the tariffs until Dec. 15 to spare holiday shoppers from price rises, sending the index up 1.5%. A flurry of activity on Aug. 23 saw China announce retaliatory tariffs, spurring Trump to increase tariffs on the $300 billion to 15% and order U.S. companies to find non-Chinese counterparts to do business with; shares dropped 2.6%.
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Volatility as measured by the VIX reached 24.59 on Aug. 5, the highest level since Jan. 3. Also known as the fear gauge, the VIX remains relatively subdued as the trade war has progressed this year. It reached 36.07 on Dec. 24, 2018, on concerns that interest rates were rising too fast and peaked at 80.86 in November 2008 at the height of the financial crisis.
"[The trade war] is definitely a piece of it," Christopher Bennett, director index investment strategy at S&P Dow Jones Indices, said in an interview. "Part of that [volatility] has to do with seasonal liquidity, too. A lot of people are on vacation or not paying attention, so you may have more exaggerated movements simply because there aren't so many players."
By the end of the month, the S&P 500 index had fallen 1.6%, led by energy stocks, which lost 8.1%, as WTI crude slid 5.9%, its first monthly decline since May. Utilities benefited from weaker energy prices and led gainers with a 5.2% advance. Financials dropped 4.8% on the prospect for lower interest rates, while real estate shares climbed 4.9% on anticipation of the same.
"As rates go down, it's not too surprising to see major banks perform less strongly," Bennett said, noting the expectation that the Federal Reserve will continue to cut interest rates.
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Retailer Target Corp. was the best-performing stock, with its share price rising more than 20% on Aug. 21 alone, following the company raising expectations for its 2019 earnings per share.
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