True to its reputation, the month of August was lukewarm for global equities including the United States. In fact, a consensus carried out from 1950 to 2016 shows that August ended up offering positive stock returns in 37 years and negative returns in 30 years, per moneychimp.com, with an average return of negative 0.27%.
In line with this trend, the S&P 500-based (SPY - Free Report) and Dow Jones Industrial Average-based (DIA - Free Report) ticked up 0.1% each and Nasdaq-100-based (QQQ - Free Report) tacked on about 1.8% gains. The all-world ETF iShares MSCI ACWI ACWI advanced about 0.1%. Europe ETF Vanguard FTSE Europe ETF VGK retreated about 0.5%, and only the emerging market ETF iShares MSCI Emerging Markets (EEM - Free Report) added 2.1% in the month.
Let’s delve a little deeper into the events that caused such market movements and are worth watching in September.
Harvey Hits Houston
August 2017 can be remembered in the United States as a month of Hurricane Harvey which wreaked havoc in Texas, causing the worst flood in years. Loss estimates for Harvey could reach $100 billion, according to an insurance analyst at Imperial Capital projects, as quoted on Bloomberg.
Refiners’ haven Texas saw their oil industry getting crippled thanks to Harvey, flood insurers turned soggy, home improvement retailers rejoiced on the need to re-arrange houses and the auto industry fell in a tight spot as auto dealerships closed down (read: Hurricane Harvey Puts These ETF Areas in Focus).
As refiners were badly hit, crude prices plunged and gasoline prices shot up. United States Gasoline Fund (UGA - Free Report) gained about 6.2% in the last five days (as of Aug 30, 2017). The difference in the price of crude oil and gasoline futures — the crack spread — shot up to benefit VanEck Vectors Oil Refiners ETF CRAK (read: 4 Sector ETFs Winning on Revenue Growth).
Apart from this key area, insurance ETF iShares Dow Jones US Insurance Fund IAK and auto ETF First Trust NASDAQ Global Auto ETF CARZ may come under pressure, while home improvement retailer ETFs like PowerShares Dynamic Building & Construction (PKB - Free Report) should gain strength (read: Home Retailer ETFs Set to Gain After Harvey).
Benchmark Treasury Yield’s Biggest Monthly Drop in Over a Year
Tensions between President Donald Trump and North Korea’s leader Kim Jong-un heightened thanks to nuclear activity by the latter. Second, U.S. stocks are guilty of overvaluation concerns.
To add to woes, two high-profile business advisory councils were dissolved in mid-August after two more CEOs resigned from the manufacturing council. Plus, the latest Fed minutes showed that policymakers are wary of weak inflation (read: Multi-Asset ETFs for Uncertain Markets).
All these kept Treasury yields lower in August. Yield on the 10-Year Benchmark U.S. Treasury declined to 2.12% on Aug 31, down 13 bps from the start of the month. This marked “the largest monthly drop in more than a year” in the 10-year Treasury yield.
This caused iShares 20+ Year Treasury Bond ETF TLT) to gain about 2.9% in the month.Low volatility ETFs fared better amid Trump and Fed worries, keeping funds like SPDR Russell 1000 Low Volatility ETF LGLV near 52-week highs (read: Low Volatility ETFs Surge Amid Trump and Fed Worries).
Gold Glitters in August
Such confusions in the market pushed up volatility levels as evident from 6.1% returns delivered by iPath S&P 500 VIX ST Futures ETN (VXX - Free Report) . This boosted the safe haven appeal of gold, leading SPDR Gold Trust (GLD - Free Report) to tack on 3% gains in the month (as of Aug 30, 2017) (read: 3 Reasons to Buy Gold ETFs Now).
Defense ETFs Soar
With geopolitical tensions rising and North Korea launching missiles, demand for arms from countries like South Korea and Japan are believed to be soaring. This has pushed up defense ETFs like SPDR S&P Aerospace & Defense ETF XAR.The fund added 3.4% in the month (as of Aug 30, 2017).
Stupendous Rally in Bitcoin
Bitcoin fired on all cylinders in August, having returned about over 71% in a month (as of Aug 30, 2017). The crypto-currency is in the limelight probably because of the fact that "bitcoin isn't regulated by any government and has been used by consumers worldwide to shelter assets from inflation or political upheavals in their home countries." Interestingly, investment firms VanEck and REX filed up bitcoin ETFs in August (read: Bitcoin ETFs: More Issuers Join the Race).
Biotech Bounces Back
Biotech ETFs, especially those with a focus on cancer therapy, staged a great show in August in particular on Gilead’s (GILD) buyout announcement of clinical-stage biopharmaceutical company Kite Pharma (KITE).iShares Nasdaq Biotechnology ETF (IBB - Free Report) was up about 5.6% whileLoncar Cancer Immunotherapy ETF (CNCR - Free Report) surged about 12% in August (read: Biotech ETFs Soar on Gilead-Kite Deal).
Small-Caps Rebound to Close August
At the end of the month, the Commerce Department released Q2 economic growth data of 3% compared with its earlier estimate of 2.6%. This was the best GDP growth since first-quarter 2015 and gave a boost to otherwise-reeling small-cap ETFs like iShares Russell 2000 ETF (IWM - Free Report) as pint-sized stocks are more domestically focused (read: 3 Reasons to Dump Small-Cap ETFs Now).
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