- The S&P 500® was down 4.24% in August, bringing its YTD return to -17.02%.
- The Dow Jones Industrial Average® lost 4.06% for the month and was down 13.29% YTD.
- The S&P MidCap 400® fell 3.25% for the month, bringing its YTD return to -14.46%.
- The S&P SmallCap 600® was down 4.51% in August and had a YTD return of -15.53%.
Winston Churchill (June 4, 1940), and now Jerome Powell (Aug. 26, 2022): "We shall fight on the beaches, we shall fight on the landing grounds, we shall fight in the fields and in the streets, we shall fight in the hills; we shall never surrender."
The S&P 500 tried to balance interest rates and Fed expectations against costs and profits, but found no balance in August, as it traded most of the month up (reaching 4.72% on Aug. 16), supporting the 4,100 level and then 4,200 (and at one point breaking above 4,300). It ignored statements from the Fed that it would do whatever it took to fight inflation and ended the month trying to defend 4,000, but it closed south at its monthly low of 3,955 (down 4.24% for the month). The realization came at Jackson Hole (with a one-day 3.39% decline), when Powell committed to beating inflation, to "use our tools forcefully" and "for some time," acknowledging that it would inflict "some pain," which he said was one of the "unfortunate costs of reducing inflation."
The result was that the market changed its anticipation of dovish Fed actions to expect an interest rate increase of 0.75% at its Sept. 20-21, 2022, meeting (there are some hoping for 0.50%, along with a few expecting 1.00%), followed by a 0.50% hike in November and then a 0.25% rise in December. There now seems to be no market for bets on a first-half Fed rate cut (a few for the second half), and given the time the increases take to fully flow through the economy, I would personally add rightly so.
For the index, this meant a 4.24% decline in August, down 17.02% YTD, and up 7.86% from its recent June 16, 2022, low as the market entered September, which is historically the worst month of the year, with an average decrease of 1.03% (since 1928).
September is traditionally when we get back to work from our summer vacation, but neither July nor August seemed dull. Economic data is expected to dominate the view, and therefore the trades (and reallocations), as the month will open with the ISM Manufacturing PMI, followed by Employment (Sept. 2), with the usual suspects following: ISM Services PMI (Sept. 6), CPI (Sept. 13), PPI (Sept. 14), Imports/Exports (Sept. 15) and then the Quadruple Witching day and S&P 500 rebalance (Sept. 16). The main event will be the FOMC meeting (Sept. 20-21), as a host of housing, inventory, income and GDP reports follow, with Q3 2022 earnings raising its head at month-end. Also in the news (and in the trades) will be the back-to-school sales, which are not expected to be good, as consumers, in general, have already pulled back. The consumer summer spending spree is already showing forward signs of decline (bookings, purchases), as retail stores are expected to start sales of overstocked merchandise, with concern over the holiday season growing.
Historically, August gains 59.6% of the time, with an average gain of 3.89% for the up months, a 3.95% average decrease for the down months and an overall average increase of 0.72%. In the forward September month, historically, the index posts gains 44.7% of the time, with an average gain of 3.28% for the up months, a 4.70% average decrease for the down months and an overall average decrease of 1.03% (historically, the worst month of the year).
The S&P 500 closed at 3,955.00, down 4.24% for the month (-4.08% with dividends) from last month's close of 4,130.29, up 9.11% (9.22%) from June’s 3,785.38 close, down 8.39% (-8.25%). The three-month period posted a loss of 4.29% (-3.88%), the YTD return was -17.02% (-16.14%) and the one-year return was -12.55% (-11.23%), with the index down 17.55% (-16.68%) from its Jan. 3, 2022, closing high, up 7.86% (8.21%) from the recent June 16 low, and up 16.80% (21.61%) from its pre-COVID-19 Feb. 19, 2020, closing high. Since Biden won the Nov. 3, 2020, U.S. election, the market has gained 17.39% (20.68%).