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Markets declined marginally over the month, following rising prospects of an interest rate hike. The Fed Chair provided indications that the case for a rate hike had grown stronger recently, primarily due to substantial job additions. Additionally, oil prices underwent a rollercoaster ride after ultimately ending the month with gains. However, expectations increased that a production cap agreement between major oil producing countries was in the offing.
August’s Performance
For the month the S&P 500 and the Dow declined 0.1% and 0.2%, respectively. However, the tech-laden Nasdaq managed to settle in the green, gaining 1%. Investors continued to grapple with the timing of a rate hike, with Fed Chairwoman Janet Yellen saying that the case for hiking federal funds rate has gained in strength in “recent months”, mostly due to a job market rebound following a slump in hiring in spring.
A potential interest rate hike this year dragged the broader markets down in August since such low rates had boosted the markets for a considerable period of time. Expectations that the Fed will move closer to a rate hike call helped the dollar hit multi-week highs. The dollar’s strength along with crude oversupply also weighed on oil prices.
The oil market has already gone through a topsy-turvy ride in August. While the crude oil entered bear market territory during the beginning of August on subdued demand, it did stampede into a bull market territory during the third week of last month, thanks to increase in expectations that top oil producing countries like Russia and Saudi Arabia will cap output.
Leading Retailers Post Encouraging Results
The bulk of the Q2 earnings season is now behind us, with results from 483 S&P 500 members already out. Total earnings for these companies are down -3.2% on +0.1% higher revenues relative to the same period last year.
The focus lately has been on the Retail sector, with a number of leading operators like Wal-Mart (WMT - Free Report) , Macy’s (M - Free Report) , Nordstrom (JWN - Free Report) and others coming out with positive surprises and a favorable outlook.
Total earnings for these retailers are up +3.9% from the same period last year on +4.2% higher revenues, with a below index average 60.5% beating EPS estimates and a very low of 44.7% coming ahead of revenue estimates (Read: Q2 Earnings Season Winding Down)
GDP’s Second Estimate Falls
The “second” estimate for second quarter GDP came in at 1.1%, lower than the initial estimate of 1.2%. In the first quarter, real GDP increased 0.8%. The decline in the pace of growth was primarily attributable to a higher-than-expected fall in business inventories.
However, the largest contributor to U.S. GDP, consumer spending, experienced a significant upward revision. Household consumption increased on an annualized basis of 4.4%, higher than the rate of 4.2% that was earlier estimated. This is the fastest pace of expansion the metric has experienced since the last quarter of 2014. (Read: 5 Stocks to Buy on Robust Consumer Spending)
Encouraging Domestic Data
Several key economic reports indicated that a recovery in the current quarter was underway. Industrial production posted its highest percentage increase since Nov 2014. Durable orders increased 4.4% in July to $228.9 billion, following a decline of 4.2% in June.Personal outlays rose for the fourth straight month in July. Personal consumption increased at a seasonally adjusted rate of 0.3% in July from June.
Among the negatives, the ISM manufacturing index fell to 52.6 in July from 53.2 in June. Additionally, the ISM Services Index decreased from 56.5% in June to 55.5% in July. Factory orders declined sharply for the second straight month in June. Orders dropped 1.5% in June after falling 1.2% in May. Additionally, construction spending was down for the third straight month in June.
Housing Sector Exhibits Strength
In keeping with the trend witnessed in July, data related to the housing sector was mostly encouraging. Housing starts rose 2.1% in July. However, building permits slipped marginally by 0.1%.The increase in housing starts was the second highest reading since the end of the recession.
Additionally, builders’ morale improved this month, holding out the hope for more construction activity in the days ahead. The NAHB/Wells Fargo Housing Market Index increased 2 points to 60 in August from a downwardly revised 58 in July. This was in line with the second highest reading for the year. (Read: 5 Stocks to Buy on Strong Housing Data)
New home sales raced close to a nine-year high in July. However, sales of existing homes declined 3.2% in July to a seasonally adjusted rate of 5.39 million, lower than the consensus estimate of 5.57 million.
Job Additions Surge, Hourly Earnings Increase
The U.S. economy created a total of 255,000 jobs in July, considerably higher than the consensus estimate of 180,000. The economy added higher-than-expected new jobs for the second straight month.
Although, the unemployment rate in July of 4.9% was higher than the consensus estimate of 4.8%, it was in line with June’s rate. This because the labor force participation rate had increased to 62.8%.
Further, the average hourly earnings gained 0.3% or 8 cents in July from June to $25.69 per hour. It was also higher than the consensus estimate of 0.2% and June’s 0.1% increase while year-ago gains advanced by 2.6%.
Oil Price Move Higher
In August, oil prices continued to move northward. During the first week, oil prices gained following a surprisingly large draw on gasoline stockpiles. Rise in oil prices helped benchmarks finish in the green for the second week. Saudi Arabia’s Energy Minister Kahlid al-Falih showed willingness to talk with major crude-oil producers to limit oil production.
During the third week, crude hit a one-month high. However, during the fourth week, analysts at Morgan Stanley (MS) said that any agreement between major oil producing nations to freeze crude production is "highly unlikely", leading to a decline in crude prices.
Following a particularly disappointing inventories report, oil prices closed at a three-week low during the last week of the month. However, WTI crude gained nearly 7.5% over August, the highest monthly gain since April.
Rate Hike Odds Increase
Fed’s July meeting minutes showed that some policymakers argued that a rate hike should take place soon as the labor market was nearing full employment. However, the majority agreed that more positive data is required to initiate such a move.
Additionally, comments from some Fed officials raised speculation of a rate hike in the near term. Kansas City Fed President Esther George said that after observing the job market, inflation and Fed’s forecast for the same, she considers “that it would be appropriate” to raise rates gradually.
Further, Dallas Fed President Robert Kaplan said that levels of inflation and employment are improving and “GDP growth in the second half of the year will be strong." He added that following “very good, healthy financial conditions,” it would be appropriate to raise rates.
Speaking at the Jackson Hole economic symposium, Fed Chair Janet Yellen said that the case for hiking federal funds rate has gained in strength in “recent months.” Yellen asserted that the case for a rate increase is gathering steam, thanks to a solid labor market and positive outlook on economic activity and inflation. Fed Vice-chairman Stanley Fisher also advocated a rate hike in the near term. Financial stocks have gained recently due to these developments.
5 Star Performers for August
I ran a screen on Research Wizard for companies with the following parameters:
Here are the top 5 stocks that made it through this screen:
Genworth Financial, Inc. (GNW - Free Report) offers various products in life insurance and lifestyle protection, long-term care insurance, annuities, asset management and mortgage insurance.
Price gain over the last 4 weeks = 86.5% Expected earnings growth for current year = 66.7%
Genworth Financial has a Zacks Rank #2 (Buy). The stock’s forward price-to-earnings ratio (P/E) for the current financial year (F1) is 5.56x.
Aegean Marine Petroleum Network Inc. is a marine fuel logistics company that physically supplies and markets refined marine fuel and lubricants to ships in port and at sea.
Price gain over the last 4 weeks = 58.2% Expected earnings growth for current year = 39.3%
Aegean Marine Petroleum Network holds a Zacks Rank #1 (Strong Buy) and it has a P/E (F1) of 8.06x.
Willdan Group, Inc. (WLDN - Free Report) is a leading single resource provider of specialized outsourced services to small and mid-sized public agencies located primarily in California and other western states.
Price gain over the last 4 weeks = 56.7% Expected earnings growth for current year = 63.5%
Apart from a Zacks Rank #2, Willdan Group has a P/E (F1) of 19.45x.
Semiconductor Manufacturing International Corp. (SMI - Free Report) is a leading global semiconductor foundry headquartered in Shanghai, China.
Price gain over the last 4 weeks = 43.5% Expected earnings growth for current year = 21.9%
Semiconductor Manufacturing International holds a Zacks Rank #2 and it has a P/E (F1) of 13.90x.
Horizon Global Corporation is a designer, manufacturer and distributor of towing, trailering, cargo management and accessory products for original equipment, aftermarket and retail customers.
Price gain over the last 4 weeks = 37% Expected earnings growth for current year = 53.7%
Horizon Global holds a Zacks Rank #1 and it has a P/E (F1) of 16.42x.
Can Stocks Recover in September?
Stocks have declined only marginally over the month of August after experiencing a relatively uneventful month. August witnessed the end of a substantially better earnings season and encouraging economic data. The fallout from the surprise Brexit verdict has also been largely muted while the world’s central banks seem to be in a mood to provide further stimulus measures.
The only really disappointment has come in at the end of the month, in the form of a surprisingly lower rate of GDP. If other economic indicators continue to remain encouraging, markets could continue return to their winning ways in the days ahead.
Where Do Zacks' Investment Ideas Come From?
You are welcome to download the full, up-to-the-minute list of 220 Zacks Rank #1 "Strong Buy" stocks free of charge. There is no better place to start your own stock search. Plus you can access the full list of must-avoid Zacks Rank #5 "Strong Sells" and other private research. See the stocks free >>
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5 Best Performing Stocks of August
Markets declined marginally over the month, following rising prospects of an interest rate hike. The Fed Chair provided indications that the case for a rate hike had grown stronger recently, primarily due to substantial job additions. Additionally, oil prices underwent a rollercoaster ride after ultimately ending the month with gains. However, expectations increased that a production cap agreement between major oil producing countries was in the offing.
August’s Performance
For the month the S&P 500 and the Dow declined 0.1% and 0.2%, respectively. However, the tech-laden Nasdaq managed to settle in the green, gaining 1%. Investors continued to grapple with the timing of a rate hike, with Fed Chairwoman Janet Yellen saying that the case for hiking federal funds rate has gained in strength in “recent months”, mostly due to a job market rebound following a slump in hiring in spring.
A potential interest rate hike this year dragged the broader markets down in August since such low rates had boosted the markets for a considerable period of time. Expectations that the Fed will move closer to a rate hike call helped the dollar hit multi-week highs. The dollar’s strength along with crude oversupply also weighed on oil prices.
The oil market has already gone through a topsy-turvy ride in August. While the crude oil entered bear market territory during the beginning of August on subdued demand, it did stampede into a bull market territory during the third week of last month, thanks to increase in expectations that top oil producing countries like Russia and Saudi Arabia will cap output.
Leading Retailers Post Encouraging Results
The bulk of the Q2 earnings season is now behind us, with results from 483 S&P 500 members already out. Total earnings for these companies are down -3.2% on +0.1% higher revenues relative to the same period last year.
The focus lately has been on the Retail sector, with a number of leading operators like Wal-Mart (WMT - Free Report) , Macy’s (M - Free Report) , Nordstrom (JWN - Free Report) and others coming out with positive surprises and a favorable outlook.
Total earnings for these retailers are up +3.9% from the same period last year on +4.2% higher revenues, with a below index average 60.5% beating EPS estimates and a very low of 44.7% coming ahead of revenue estimates (Read: Q2 Earnings Season Winding Down)
GDP’s Second Estimate Falls
The “second” estimate for second quarter GDP came in at 1.1%, lower than the initial estimate of 1.2%. In the first quarter, real GDP increased 0.8%. The decline in the pace of growth was primarily attributable to a higher-than-expected fall in business inventories.
However, the largest contributor to U.S. GDP, consumer spending, experienced a significant upward revision. Household consumption increased on an annualized basis of 4.4%, higher than the rate of 4.2% that was earlier estimated. This is the fastest pace of expansion the metric has experienced since the last quarter of 2014. (Read: 5 Stocks to Buy on Robust Consumer Spending)
Encouraging Domestic Data
Several key economic reports indicated that a recovery in the current quarter was underway. Industrial production posted its highest percentage increase since Nov 2014. Durable orders increased 4.4% in July to $228.9 billion, following a decline of 4.2% in June.Personal outlays rose for the fourth straight month in July. Personal consumption increased at a seasonally adjusted rate of 0.3% in July from June.
Among the negatives, the ISM manufacturing index fell to 52.6 in July from 53.2 in June. Additionally, the ISM Services Index decreased from 56.5% in June to 55.5% in July. Factory orders declined sharply for the second straight month in June. Orders dropped 1.5% in June after falling 1.2% in May. Additionally, construction spending was down for the third straight month in June.
Housing Sector Exhibits Strength
In keeping with the trend witnessed in July, data related to the housing sector was mostly encouraging. Housing starts rose 2.1% in July. However, building permits slipped marginally by 0.1%.The increase in housing starts was the second highest reading since the end of the recession.
Additionally, builders’ morale improved this month, holding out the hope for more construction activity in the days ahead. The NAHB/Wells Fargo Housing Market Index increased 2 points to 60 in August from a downwardly revised 58 in July. This was in line with the second highest reading for the year. (Read: 5 Stocks to Buy on Strong Housing Data)
New home sales raced close to a nine-year high in July. However, sales of existing homes declined 3.2% in July to a seasonally adjusted rate of 5.39 million, lower than the consensus estimate of 5.57 million.
Job Additions Surge, Hourly Earnings Increase
The U.S. economy created a total of 255,000 jobs in July, considerably higher than the consensus estimate of 180,000. The economy added higher-than-expected new jobs for the second straight month.
Although, the unemployment rate in July of 4.9% was higher than the consensus estimate of 4.8%, it was in line with June’s rate. This because the labor force participation rate had increased to 62.8%.
Further, the average hourly earnings gained 0.3% or 8 cents in July from June to $25.69 per hour. It was also higher than the consensus estimate of 0.2% and June’s 0.1% increase while year-ago gains advanced by 2.6%.
Oil Price Move Higher
In August, oil prices continued to move northward. During the first week, oil prices gained following a surprisingly large draw on gasoline stockpiles. Rise in oil prices helped benchmarks finish in the green for the second week. Saudi Arabia’s Energy Minister Kahlid al-Falih showed willingness to talk with major crude-oil producers to limit oil production.
During the third week, crude hit a one-month high. However, during the fourth week, analysts at Morgan Stanley (MS) said that any agreement between major oil producing nations to freeze crude production is "highly unlikely", leading to a decline in crude prices.
Following a particularly disappointing inventories report, oil prices closed at a three-week low during the last week of the month. However, WTI crude gained nearly 7.5% over August, the highest monthly gain since April.
Rate Hike Odds Increase
Fed’s July meeting minutes showed that some policymakers argued that a rate hike should take place soon as the labor market was nearing full employment. However, the majority agreed that more positive data is required to initiate such a move.
Additionally, comments from some Fed officials raised speculation of a rate hike in the near term. Kansas City Fed President Esther George said that after observing the job market, inflation and Fed’s forecast for the same, she considers “that it would be appropriate” to raise rates gradually.
Further, Dallas Fed President Robert Kaplan said that levels of inflation and employment are improving and “GDP growth in the second half of the year will be strong." He added that following “very good, healthy financial conditions,” it would be appropriate to raise rates.
Speaking at the Jackson Hole economic symposium, Fed Chair Janet Yellen said that the case for hiking federal funds rate has gained in strength in “recent months.” Yellen asserted that the case for a rate increase is gathering steam, thanks to a solid labor market and positive outlook on economic activity and inflation. Fed Vice-chairman Stanley Fisher also advocated a rate hike in the near term. Financial stocks have gained recently due to these developments.
5 Star Performers for August
I ran a screen on Research Wizard for companies with the following parameters:
(Click here to sign up for a free trial to the Research Wizard today):
(See the performance of Zacks’ portfolios and strategies here: About Zacks Performance).
Here are the top 5 stocks that made it through this screen:
Genworth Financial, Inc. (GNW - Free Report) offers various products in life insurance and lifestyle protection, long-term care insurance, annuities, asset management and mortgage insurance.
Price gain over the last 4 weeks = 86.5%
Expected earnings growth for current year = 66.7%
Genworth Financial has a Zacks Rank #2 (Buy). The stock’s forward price-to-earnings ratio (P/E) for the current financial year (F1) is 5.56x.
Aegean Marine Petroleum Network Inc. is a marine fuel logistics company that physically supplies and markets refined marine fuel and lubricants to ships in port and at sea.
Price gain over the last 4 weeks = 58.2%
Expected earnings growth for current year = 39.3%
Aegean Marine Petroleum Network holds a Zacks Rank #1 (Strong Buy) and it has a P/E (F1) of 8.06x.
Willdan Group, Inc. (WLDN - Free Report) is a leading single resource provider of specialized outsourced services to small and mid-sized public agencies located primarily in California and other western states.
Price gain over the last 4 weeks = 56.7%
Expected earnings growth for current year = 63.5%
Apart from a Zacks Rank #2, Willdan Group has a P/E (F1) of 19.45x.
Semiconductor Manufacturing International Corp. (SMI - Free Report) is a leading global semiconductor foundry headquartered in Shanghai, China.
Price gain over the last 4 weeks = 43.5%
Expected earnings growth for current year = 21.9%
Semiconductor Manufacturing International holds a Zacks Rank #2 and it has a P/E (F1) of 13.90x.
Horizon Global Corporation is a designer, manufacturer and distributor of towing, trailering, cargo management and accessory products for original equipment, aftermarket and retail customers.
Price gain over the last 4 weeks = 37%
Expected earnings growth for current year = 53.7%
Horizon Global holds a Zacks Rank #1 and it has a P/E (F1) of 16.42x.
Can Stocks Recover in September?
Stocks have declined only marginally over the month of August after experiencing a relatively uneventful month. August witnessed the end of a substantially better earnings season and encouraging economic data. The fallout from the surprise Brexit verdict has also been largely muted while the world’s central banks seem to be in a mood to provide further stimulus measures.
The only really disappointment has come in at the end of the month, in the form of a surprisingly lower rate of GDP. If other economic indicators continue to remain encouraging, markets could continue return to their winning ways in the days ahead.
Where Do Zacks' Investment Ideas Come From?
You are welcome to download the full, up-to-the-minute list of 220 Zacks Rank #1 "Strong Buy" stocks free of charge. There is no better place to start your own stock search. Plus you can access the full list of must-avoid Zacks Rank #5 "Strong Sells" and other private research. See the stocks free >>