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Aug 2019 Mkt Recap: Bond Yields Sink, Stocks See Saw as Tariff War Persists

Escalating tariff and trade conflicts, as well as concerns over the U.S. and global economy, led to a volatile month in the markets in August.

After closing July at 2,980.38, the S&P 500® dropped more than 4% by mid-month before bouncing back to close August at 2,926.46 – a 1.81% decline for the month.

Boat image

As investors fled equities, government bond sales flourished, driving down yields. The yield on 10-year U.S. treasuries slid to just 1.50% at the close of August – about half a percentage point lower than the 2.02% yield at the July close. The treasury yield has dropped more than a full percentage point in 2019 after closing 2018 at 2.68%.

Here are some other recent economic highlights that are covered in greater detail later in this report (Exhibit 1):

Exhibit 1
  • Retail sales strong. Retail sales were up 0.7% from the previous month in July, according to the Department of Commerce report Aug. 14.
  • Job growth overstated by half a million. Monthly job growth estimates by the U.S. Department of Labor overstated the actual number of new jobs in the U.S. by about 501,000 from January 2018 through March 2019.
  • Oil prices sink. Oil prices dropped more than $3 a barrel in August as the market continued to deal with a supply-and-demand imbalance.

Drilling Down

Exhibit 2

U.S. stocks dip

The S&P 500® Index dropped 1.81% for the month, from 2,980.38 at the end of July to 2,926.46 at the August close (Exhibit 2). The index is still up 16.74% for all of 2019. (The S&P 500 is a market-cap-weighted index that represents the average performance of a group of 500 large capitalization stocks.)

The total return of the S&P 500 (including dividends) was -1.58% in August.

The NASDAQ Index also dropped in August, from 8,175.42 at the July close to 7,962.88 at the end of August – a 2.60% decline. (The NASDAQ – National Association of Securities Dealers Automated Quotations – is an electronic stock exchange with more than 3,300 company listings.)

Retail sales strong

Thanks to strong internet sales, total retail sales for July were up 0.7% from the previous month, according to the Department of Commerce Aug. 15 report. Sales were up 3.4% from a year earlier.

Non-store retailers (primarily online) were up 2.8% for the month and 16.0% from a year earlier. On the flip side, motor vehicle sales were down 0.6% from the previous month, but still up 2.3% from a year earlier. Building materials were up 0.2% from the previous month but down 2.9% from a year earlier, and department store sales were up 1.2% for the month, but down 4.7% from a year earlier.

Employers added half a million fewer jobs than reported

The Department of Labor has lowered its estimated job growth figures for the period from January 2018 through March 2019 by 501,000 jobs, according to an Aug. 21 Bureau of Labor Statistics report. The correction was the result of a routine annual audit of job-related data.

The downward revision means that in 2018, employers added just 185,000 new jobs per month rather than 223,000 new jobs, as previously reported.

Exhibit 3

Most sectors stumble

Most sectors of the S&P 500 lost ground in August. The Energy sector suffered the biggest decline, down 8.07%; followed by Financials, down 4.85%; Materials, down 2.83%; and Industrials, down 2.62%. Only three of the 11 sectors gained ground for the month – Utilities, Real Estate and Consumer Staples.

Exhibit 3 shows the results of the 11 sectors for the past month and all of 2019.

Treasury yields sink

Exhibit 4

The yield on 10-year U.S. Treasuries dropped significantly in August, as bond investors ramped up buying activity. Rates dropped from 2.02% at the end of July to 1.50% at the August close (Exhibit 4).

Oil prices dip

Oil prices dropped moderately in August, as OPEC and Russia increased production. The price of a barrel of West Texas Intermediate, a grade of crude oil used as a benchmark in oil pricing, slipped 5.94% from $58.58 at the end of July to the $55.10 at the August close (Exhibit 5).

Exhibit 5

International equities slip

International stocks continued a downward
trend in August, as trade and tariff issues continued to be a drag on the economy. The MSCI EAFE Index dropped 2.88% for the month from 1,897.12 at the end of July to 1,842.58 at the August close (Exhibit 6).  (The MSCI EAFE Index tracks developed-economy stocks in Europe, Asia and Australia.)

Exhibit 6

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