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Wall Street had a downbeat August, with the S&P 500 losing about 4.4% past month (as of Aug 31, 2022), the Dow Jones losing 3.6% and the Nasdaq Composite falling about 6.5%. The Russell 2000 lost about 3.2%. Rising rate worries at the end of the month made investors jittery, but a host of upbeat corporate earnings as well as data points kept investor optimism intact.
Fed Rate Hike Bets Strengthen
New York Fed President John Williams recently said he expects interest rates to continue moving higher and remain at those levels until inflation is controlled, as quoted on CNBC. Fed chief Powell too recently commented that taming U.S. inflation will cause "pain" for American families and businesses as rate hikes will continue.
Per CME group, there is a 70.5% probability of a 75-bp rate hike in the September meeting, while 29.5% probability of a 50-bp rate hike. In response to Fed rate hike bets, the two-year U.S. treasury yield jumped from 2.90% at the start of the month to 3.46% on Aug 30, 2022.
Inflation Cooled a Bit
Inflation in the United States moderated slightly as energy and gasoline prices dropped. This is especially true as the consumer price index (“CPI”) jumped 8.5% year over year in July, down from a 9.1% year-over-year increase in June, which was the fastest increase since November 1981. The producer price index (PPI) showed that prices fell 0.5% sequentially compared to expectations of a 0.2% increase.
Signing of ‘Inflation Reduction Act’
U.S. President Joe Biden has also signed a $740 billion climate change, healthcare and tax ‘Inflation Reduction Act.’ The coming Democratic message will likely focus on the aspects of the bill that could improve Americans' lives immediately — including tax credits for electric vehicles and energy-efficient home improvements and key health care provisions.
The bill benefits clean energy and electric vehicles sectors meaningfully. Energy Secretary Jennifer Granholm pointed to a new 30% tax credit for installing energy-efficient windows, heat pumps, or newer models of appliances. A second tax credit encourages people to install solar panels on their roofs, per CNN, as quoted on Yahoo Finance.
Oil prices jumped recently after Saudi Arabia indicated that OPEC could slash output. The Organization of the Petroleum Exporting Countries plans to lower production to correct the recent oil price decline driven by poor futures market liquidity and recessionary fears. The decision has been taken despite the fact that the oil market is extremely tight. This could boost oil prices again by the beginning of 2023, says one analyst, as quoted on Yahoo Finance. United States Oil Fund, LP (USO - Free Report) , though it remained flat in the month, may be up for gains ahead.
Utility ETFs Scaling New Highs
Although the broad stock market staged a nice comeback in early August from the worst first-half performance, volatility and uncertainty persist, and the utilities sector is making the most of it. No wonder, most utility stocks and ETFs are hitting fresh highs. This is always a safe sector and flew high in August. The sector has a solid Zacks Rank and sees handsome yields. Utilities Select Sector SPDR (XLU - Free Report) , Vanguard Utilities ETF (VPU) and iShares U.S. Utilities ETF (IDU - Free Report) are some of the winners.
Greenback Gained Strength
Invesco DB US Dollar Index Bullish Fund (UUP) gained about 3% past month. As a result, small-cap stocks fared better than large-caps in August as pint-sized stocks do not have much foreign exposure.
Agriculture Wins
Agricultural products won in August. Among the lot, iPath Series B Bloomberg Coffee Subindex Total Return ETN (up 14.8%) and Teucrium Corn ETF (CORN) (up 11%) deserve special mention. Dry weather in the key producing region of Brazil led to gains in coffee prices. This has hurt the development of coffee buds. Severe drought and lower crop condition ratings have boosted corn prices.
Uranium Miners Draw Attention
Sprott Uranium Miners ETF (URNM - Free Report) gained about 12% past month.Share prices of uranium miners jumped last week as Japan's prime minister Fumio Kishida said the nation resumed idled nuclear plants and will focus on developing next-generation reactors to prepare for the soaring energy costs amid the Ukraine crisis.
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Top ETF Stories of August
Wall Street had a downbeat August, with the S&P 500 losing about 4.4% past month (as of Aug 31, 2022), the Dow Jones losing 3.6% and the Nasdaq Composite falling about 6.5%. The Russell 2000 lost about 3.2%. Rising rate worries at the end of the month made investors jittery, but a host of upbeat corporate earnings as well as data points kept investor optimism intact.
Fed Rate Hike Bets Strengthen
New York Fed President John Williams recently said he expects interest rates to continue moving higher and remain at those levels until inflation is controlled, as quoted on CNBC. Fed chief Powell too recently commented that taming U.S. inflation will cause "pain" for American families and businesses as rate hikes will continue.
Per CME group, there is a 70.5% probability of a 75-bp rate hike in the September meeting, while 29.5% probability of a 50-bp rate hike. In response to Fed rate hike bets, the two-year U.S. treasury yield jumped from 2.90% at the start of the month to 3.46% on Aug 30, 2022.
Inflation Cooled a Bit
Inflation in the United States moderated slightly as energy and gasoline prices dropped. This is especially true as the consumer price index (“CPI”) jumped 8.5% year over year in July, down from a 9.1% year-over-year increase in June, which was the fastest increase since November 1981. The producer price index (PPI) showed that prices fell 0.5% sequentially compared to expectations of a 0.2% increase.
Signing of ‘Inflation Reduction Act’
U.S. President Joe Biden has also signed a $740 billion climate change, healthcare and tax ‘Inflation Reduction Act.’ The coming Democratic message will likely focus on the aspects of the bill that could improve Americans' lives immediately — including tax credits for electric vehicles and energy-efficient home improvements and key health care provisions.
The bill benefits clean energy and electric vehicles sectors meaningfully. Energy Secretary Jennifer Granholm pointed to a new 30% tax credit for installing energy-efficient windows, heat pumps, or newer models of appliances. A second tax credit encourages people to install solar panels on their roofs, per CNN, as quoted on Yahoo Finance.
iShares Global Clean Energy ETF (ICLN - Free Report) , Invesco Solar ETF (TAN) and Global X Autonomous & Electric Vehicles ETF (DRIV) are some of the beneficiaries (read: Inflation Reduction Act: Clean Energy & EV ETFs Winners).
Oil & Gas Rally
Oil prices jumped recently after Saudi Arabia indicated that OPEC could slash output. The Organization of the Petroleum Exporting Countries plans to lower production to correct the recent oil price decline driven by poor futures market liquidity and recessionary fears. The decision has been taken despite the fact that the oil market is extremely tight. This could boost oil prices again by the beginning of 2023, says one analyst, as quoted on Yahoo Finance. United States Oil Fund, LP (USO - Free Report) , though it remained flat in the month, may be up for gains ahead.
Utility ETFs Scaling New Highs
Although the broad stock market staged a nice comeback in early August from the worst first-half performance, volatility and uncertainty persist, and the utilities sector is making the most of it. No wonder, most utility stocks and ETFs are hitting fresh highs. This is always a safe sector and flew high in August. The sector has a solid Zacks Rank and sees handsome yields. Utilities Select Sector SPDR (XLU - Free Report) , Vanguard Utilities ETF (VPU) and iShares U.S. Utilities ETF (IDU - Free Report) are some of the winners.
Greenback Gained Strength
Invesco DB US Dollar Index Bullish Fund (UUP) gained about 3% past month. As a result, small-cap stocks fared better than large-caps in August as pint-sized stocks do not have much foreign exposure.
Agriculture Wins
Agricultural products won in August. Among the lot, iPath Series B Bloomberg Coffee Subindex Total Return ETN (up 14.8%) and Teucrium Corn ETF (CORN) (up 11%) deserve special mention. Dry weather in the key producing region of Brazil led to gains in coffee prices. This has hurt the development of coffee buds. Severe drought and lower crop condition ratings have boosted corn prices.
Uranium Miners Draw Attention
Sprott Uranium Miners ETF (URNM - Free Report) gained about 12% past month.Share prices of uranium miners jumped last week as Japan's prime minister Fumio Kishida said the nation resumed idled nuclear plants and will focus on developing next-generation reactors to prepare for the soaring energy costs amid the Ukraine crisis.