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Wall Street to Your Street


August Market Recap: Stock Market Suffers From Summer Doldrums

The stock market has been fairly flat this summer in spite of improving economic growth, an expanding employment market, and solid retail sales and consumer spending. After finishing July at 2470.30, the S&P 500® closed August about a point higher at 2471.65.

What’s holding the market back? Gridlock in Washington, D.C., tensions over North Korea, a sluggish oil market, and concern over corporate earnings growth may all have played into the lackluster performance of the market recently.

Here are some highlights from the month (Exhibit 1):

  • GDP growth revised up. Gross Domestic Product (GDP) growth was revised up to 3% annualized for the second quarter from the initial estimate of 2.6%, according to the U.S. Department of Commerce GDP report issued August 28.
  • Retail sales rebound. Retail sales were up 0.6% in July, according to the U.S. Department of Commerce. 
  • Employment growth continues. Employers added 156,000 new jobs in August following 189,000 new jobs in July, according to the U.S. Bureau of Labor Statistics Employment Situation Report September 1. The unemployment rate was little changed at 4.4%.
  • Oil prices retreat but gasoline surges. After a quick jump in July that pushed the price of oil to just over $50 a barrel (West Texas Intermediate), prices dipped back into the high $40s in August, closing the month at $47.23. However, gasoline prices jumped to the highest level of the year due to supply issues caused by Hurricane Harvey. Those prices are expected to drop back to the normal range once distribution centers have recovered from the hurricane.

Exhibit 1

Drilling down

US Stocks flat in August Exhibit 2

The S&P 500 was essentially the same at the close of August as it was at the close of July, moving from 2470.30 July 31 to 2471.65 August 31 (Exhibit 2). The S&P 500 is up 10.40% for the year with a total return of 11.93%.

The NASDAQ was up 1.27% in August, from 6,348.12 at the end of July to 6,428.66 at the close of trading in August. The NASDAQ is up 19.42% for the year.

Employment keeps climbing

Employment grew modestly the past two months, increasing by 189,000 jobs in July and 156,000 in August, marking 83 consecutive months of job growth, according to the U.S. Department of Labor, Bureau of Labor Statistics Employment Situation report on September 1.

Although August job growth was modest by recent standards, it is still significant considering the low 4.4% unemployment rate. While recent surveys by the Philadelphia Federal Reserve have shown that businesses are interested in adding staff, finding qualified workers has become an obstacle to business growth – and may continue to be a problem in the months ahead.

But while job growth has been good, wage growth is still very slow. Wages grew a very disappointing $.03 over the previous month in August – and are up 2.5% over the past 12 months.

Retail sales rebound

After a slow start to the summer, retail sales were up 0.6% in July, according to the Retail Sales Report issued August 15 by the U.S. Department of Commerce. Sales are up 4.2% year-over-year.

Online sales have been particularly strong this year – with “non-store” sales up 0.5% in July and 11.5% year-over-year.

Sector returns Exhibit 3

August was a fairly flat month for most sectors of the S&P 500. Information Technology led the way with a 3.47% gain, followed by Utilities with a 3.25% gain, and Health Care, with a 2.85% gain.  The biggest losers included Energy, down 5.18%, and Telecom Services, down 3.02%.

Exhibit 3 shows the results for all 11 sectors.

Bond yields sinking

Market interest rates on 10-year U.S. Treasuries have been dropping slowly for the past few months. Rates dropped again during August, from 2.29% at the end of July to just 2.12% at the close of August (Exhibit 4).

Euro and Yen both gain versus dollar Exhibit 4

The Euro continued its strong gains versus the dollar in August, up 0.84% for the month. For the year, the dollar has dropped 12.72% versus the Euro, reversing a long upward trend by the dollar in recent years (Exhibit 5).

The Yen also improved against the dollar in July, up 0.39% for the month and 5.64% for the year (Exhibit 6).

Oil sinks again Exhibit 5

After a hopeful July rebound, oil prices dropped back down to under $50 a barrel in August, closing the month with a 5.86% decline. The price dropped from $50.17 per barrel (West Texas Intermediate) at the end of July to $47.23 per barrel at the close of August (Exhibit 7).

Gold prices up

Gold prices moved up in August over political uncertainty, rising tensions regarding the North Korean missile crisis, and Hurricane Harvey. Gold closed August at $1,322.20 per ounce, up 4.2% from the July close of $1,268.40 per ounce (Exhibit 8).

International inches down Exhibit 6

The international stock markets dipped slightly in August. The MSCI EAFE Index, which closed the month at 1,930.82, was down 0.31% from its July close of 1,936.91. It is up 14.66% for the year (Exhibit 9).

 Exhibit 7    Exhibit 8 Exhibit 9   

Outlook from Chief Investment Strategist—Mark Simenstad

(See: September Market Outlook to find out what we expect in the weeks and months ahead)


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