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Wall Street hit several fresh highs in August as investors rotated into the beaten-down segments of the year —cyclicals. The S&P 500 and the Nasdaq witnessed back-to-back record-setting sessions at the end of the month while the laggard Dow Jones turned positive for the year.
The Nasdaq 100 rose nearly 11% in August compared to a gain of about 7% for the S&P 500, about 6.6% advancement in the Dow Jones and 5.5% for the Russell 2000. The S&P 500, in fact, enjoyed the best August in 34 years. Of the 10 best-performing companies in the S&P 500 in August, four of them hailed frtom airline, cruise ship, or casino operators – each up more than 23%, as quoted on Bloombergquint.
Below we highlight a few key financial and economic takeaways from the month of August that pulled the strings of the ETF world.
Fed Targets "Average Inflation" of 2%
On Aug 27, the Federal Reserve announced a new strategy to bring back the United States to full employment level and drive inflation back to healthier levels. Under the new scheme, the U.S. central bank will seek to achieve inflation averaging 2% over time, counterbalancing below-2% periods with higher inflation "for some time."
The change in the Fed’s tone suggests the its key overnight interest rate, already at rock-bottom levels, will remain so in the medium term as the central bank is striving to drive inflation (read: Fed Targets "Average Inflation" of 2%: ETF Strategies to Play).
The decision to boost inflation and the Fed’s reluctance to control the yield curve at the current level has steepened the yield curve. The benchmark 10-year U.S. treasury yield gained by 16 bps to 0.72% on Aug 31 from the start of the month. The yield on two-year treasuries was at 0.14% on Aug 31 versus 0.11% at the start of the month. Since the steepening of the yield curve is positive for banks, Invesco KBW Bank ETF (KBWB - Free Report) has added 4.9% in the past month.
Notably, Tesla’s stock has skyrocketed 70% since its split was announced on Aug 11 while Apple has surged more than 30% since it announced its split on Jul 30. No wonder, the news made Apple-heavy ETFs like Technology Select Sector SPDR Fund (XLK - Free Report) and Tesla-heavy ETFs like First Trust NASDAQ Global Auto Index Fund (CARZ - Free Report) winners.
Positive Vaccine and Treatment Data
The first company to start human clinical trials of its coronavirus vaccine candidate in the United States — Moderna (MRNA - Free Report) — has once again come up with encouraging study data relating to mRNA-1273 in August. In the vaccine race, AstraZenaca, Johnson & Johnson and Pfizer, are the other prominent names. The Financial Times reported that the Trump administration is considering providing "emergency use" approval of the experimental coronavirus vaccine from AstraZeneca and Oxford University in October (read: Bet on These Momentum & High-Beta ETFs on Treatment Hopes).
On the treatment front, the U.S. Food and Drug Administration (FDA) issued an emergency use authorization for investigational convalescent plasma to treat COVID-19 in hospitalized patients. While the treatment has not yet undergone full clinical trials, the FDA feels that the “product may be effective in treating COVID-19 and that the known and potential benefits of the product outweigh the known and potential risks of the product.”
Upbeat Economic Datapoints
A slew of upbeat economic datapoints also helped the equity market rally in August. U.S. consumer spending rose 1.9% in July, beating a Reuters forecast of a 1.5% gain, the Commerce Department said. Personal income was also stronger than expected, rising 0.4% while economists had forecast a decline of 0.2%.
Jobs data for the month of August also came in stronger than expected. The U.S. economy added 1.76 million jobs in July 2020, beating market expectations of a 1.6 million increase. The U.S. ISM Manufacturing PMI came in at 54.2 for July 2020, up from 52.6 in the previous month and surpassing market expectations of 53.6.
Gold Lost Its Glitter; Silver & Copper Win
Gold futures ended higher at the end of month, but prices still finished a bit lower for the month. Most-active prices witnessed the first monthly loss in six months, per a MarketWatch article. Overvaluation concerns, profit booking, increased reopening trade and occasional gains in the greenback weighed on the yellow metal in August. SPDR Gold Shares (GLD - Free Report) has gained 0.3% in the past month.
However, the return of risk-on sentiments boosted silver ETF iShares Silver Trust (SLV - Free Report) by about 18% in the month. Unlike gold, silver has usage in industrial activities. Copper prices too rallied as copper futures settled at their highest since June 2018. iPath Series B Bloomberg Copper Subindex Total Return ETN advanced about 4% in the month.
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Top ETF Stories of the Best August in 34 Years
Wall Street hit several fresh highs in August as investors rotated into the beaten-down segments of the year —cyclicals. The S&P 500 and the Nasdaq witnessed back-to-back record-setting sessions at the end of the month while the laggard Dow Jones turned positive for the year.
The Nasdaq 100 rose nearly 11% in August compared to a gain of about 7% for the S&P 500, about 6.6% advancement in the Dow Jones and 5.5% for the Russell 2000. The S&P 500, in fact, enjoyed the best August in 34 years. Of the 10 best-performing companies in the S&P 500 in August, four of them hailed frtom airline, cruise ship, or casino operators – each up more than 23%, as quoted on Bloombergquint.
Below we highlight a few key financial and economic takeaways from the month of August that pulled the strings of the ETF world.
Fed Targets "Average Inflation" of 2%
On Aug 27, the Federal Reserve announced a new strategy to bring back the United States to full employment level and drive inflation back to healthier levels. Under the new scheme, the U.S. central bank will seek to achieve inflation averaging 2% over time, counterbalancing below-2% periods with higher inflation "for some time."
The change in the Fed’s tone suggests the its key overnight interest rate, already at rock-bottom levels, will remain so in the medium term as the central bank is striving to drive inflation (read: Fed Targets "Average Inflation" of 2%: ETF Strategies to Play).
The decision to boost inflation and the Fed’s reluctance to control the yield curve at the current level has steepened the yield curve. The benchmark 10-year U.S. treasury yield gained by 16 bps to 0.72% on Aug 31 from the start of the month. The yield on two-year treasuries was at 0.14% on Aug 31 versus 0.11% at the start of the month. Since the steepening of the yield curve is positive for banks, Invesco KBW Bank ETF (KBWB - Free Report) has added 4.9% in the past month.
Tesla & Apple Stock Splits
The month can be remembered due to Tesla (TSLA - Free Report) and Apple (AAPL - Free Report) ’s stock split news. Tesla jumped 12.6% and Apple rose 3.4% on Aug 31 after Apple split its stock 4-for-1, while Tesla split its stock 5-for-1, as the companies looked to make their shares more affordable to individual investors.
Notably, Tesla’s stock has skyrocketed 70% since its split was announced on Aug 11 while Apple has surged more than 30% since it announced its split on Jul 30. No wonder, the news made Apple-heavy ETFs like Technology Select Sector SPDR Fund (XLK - Free Report) and Tesla-heavy ETFs like First Trust NASDAQ Global Auto Index Fund (CARZ - Free Report) winners.
Positive Vaccine and Treatment Data
The first company to start human clinical trials of its coronavirus vaccine candidate in the United States — Moderna (MRNA - Free Report) — has once again come up with encouraging study data relating to mRNA-1273 in August. In the vaccine race, AstraZenaca, Johnson & Johnson and Pfizer, are the other prominent names. The Financial Times reported that the Trump administration is considering providing "emergency use" approval of the experimental coronavirus vaccine from AstraZeneca and Oxford University in October (read: Bet on These Momentum & High-Beta ETFs on Treatment Hopes).
On the treatment front, the U.S. Food and Drug Administration (FDA) issued an emergency use authorization for investigational convalescent plasma to treat COVID-19 in hospitalized patients. While the treatment has not yet undergone full clinical trials, the FDA feels that the “product may be effective in treating COVID-19 and that the known and potential benefits of the product outweigh the known and potential risks of the product.”
Upbeat Economic Datapoints
A slew of upbeat economic datapoints also helped the equity market rally in August. U.S. consumer spending rose 1.9% in July, beating a Reuters forecast of a 1.5% gain, the Commerce Department said. Personal income was also stronger than expected, rising 0.4% while economists had forecast a decline of 0.2%.
Jobs data for the month of August also came in stronger than expected. The U.S. economy added 1.76 million jobs in July 2020, beating market expectations of a 1.6 million increase. The U.S. ISM Manufacturing PMI came in at 54.2 for July 2020, up from 52.6 in the previous month and surpassing market expectations of 53.6.
Gold Lost Its Glitter; Silver & Copper Win
Gold futures ended higher at the end of month, but prices still finished a bit lower for the month. Most-active prices witnessed the first monthly loss in six months, per a MarketWatch article. Overvaluation concerns, profit booking, increased reopening trade and occasional gains in the greenback weighed on the yellow metal in August. SPDR Gold Shares (GLD - Free Report) has gained 0.3% in the past month.
However, the return of risk-on sentiments boosted silver ETF iShares Silver Trust (SLV - Free Report) by about 18% in the month. Unlike gold, silver has usage in industrial activities. Copper prices too rallied as copper futures settled at their highest since June 2018. iPath Series B Bloomberg Copper Subindex Total Return ETN advanced about 4% in the month.
Key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>