For investors, August was like a pretty wild rollercoaster. You start the ride in a little car going up and up and up. At the top, it suddenly gets very quiet.
As gravity begins to take effect, everyone screams and shouts until finally the roller coaster glides smoothly into the station.
It's a pretty good metaphor for what happened in the financial markets during the month.
The market started the month with recession fears, fueled by a weaker-than-expected jobs report, followed immediately by near-total panic. Part of the panic was due to those recession fears. The bigger issue was instability in Japanese markets that briefly spread around the world.
Related: Stock rally faces tough test due to September seasonality
Some stocks simply imploded, like Super Micro Computer. (CISM) which fell 19.9% in one day. Or Intel (INTC) that just fell and fell and fell.
For many investors, the experience was not pleasant. The Dow Jones Industrial Average fell 2,100 points in three days, with the biggest drop being 1,033 points on August 5, when the Dow stood at 38,703.27.
And then the market changed.
From there, the Dow rose 7.4% and ended the month up 1.8%. The Standard & Poor's 500 index, which had lost 6.1% in those first terrible days, rose strongly again and gained 2.3% for the month. The Nasdaq Composite fell 5.8% between August 1 and 5. Its monthly gain was a modest 0.7%.
Despite all that noise, August ended up being a small month in terms of numbers when all was said and done.
Powell gives good news
But there was one moment, in fact, to remember what was happening: when Federal Reserve Chairman Jerome Powell finally told an assembly of central bankers in Jackson Hole, Wyoming — and the world — “The time has come to tighten monetary policy,” meaning interest rates are coming down.
That’s where September begins. The Federal Reserve meets on September 17-18 and will almost certainly cut its benchmark federal funds rate from 5.25% to 5.5%, the level in effect since July 2023.
The consensus is that the first cut will be from 5% to 5.25%. It won't be a major cut, but it will be the first since July 2023.
Credit markets have already pushed the yield on two-year Treasury bonds down 22%, from 5.1% in April to 3.92% on August 30.
The yield on 10-year Treasury notes, a key determinant of mortgage rates, has fallen 21% from just under 5% last October to 3.91% as of Aug. 30.
Mortgage rates are now below 6.5%although national housing reports suggest they have not fallen enough to encourage buyers to make offers.
More rate cuts are likely to come over the next year, and the performance of Treasury yields is a sign that markets are already expecting them.
More Wall Street analysis:
- Veteran fund manager reveals surprising predictions for Nvidia stock
- Intel's future may suddenly be in doubt
- Not all analysts are pessimistic about the ailing Super Micro Computer
How the jobs report will affect the Federal Reserve
The jobs report, due Friday before the market opens, is expected to show a 4.2% employment rate, down slightly from 4.3% in July. Nonfarm payrolls are expected to rise by 134,000. A higher-than-expected unemployment rate will put more pressure on the Fed to cut rates. The same will happen if the payroll employment figure is lower than expected.
If the numbers are stronger than expected, the Fed will maintain a small rate cut in September.
These are unreliable figures, to be sure, subject to substantial revisions due to the difficulties in collecting and making sense of the data, but markets react to them anyway.
Earnings season is coming to an end, but there is one report that is very important
The report that will stand out this week comes from Broadcom (AVGO) On September 5, Broadcom is a major semiconductor manufacturer and software developer. It is rapidly building a presence in the field of artificial intelligence. Analysts expect earnings of $1.20 on revenue of about $13 billion.
Shares are up nearly 46% this year.
Other companies that reported their results this week include:
- Cybersecurity company Zscaler (ZS) The company offers cloud-based services to protect enterprise networks and data.
- Hewlett-Packard Company (Energy Efficiency) the data center business.
- Sporting goods retailer Dicks Sporting Goods (DKS) .
Related: Veteran analyst explains why General Motors stock is a bargain buy
technology did not dominate the markets in August
Overall, technology remains the most important sector for stocks. The S&P 500 index is up this year, thanks in large part to the 26.5% gain enjoyed by its information technology sector. Consider Nvidia (NVDA) Microsoft (MSFT) Apple (APL-American Lead Association) and others.
But in August, the sector rose by just 1.16% and in July it fell by 2.1%.
Among the big winners were consumer staples, up 5.8%, real estate, up 5.6%, health care, up 4.4%, and utilities, up 4.3%. Perhaps this is evidence that the economy is expanding.
Top S&P 500 Companies of the Month:
- Kellanova (K) maker of snack foods as well as international versions of Kellogg's Rice Krispies and other cereals, rose 38.6%.
- Fortinet cybersecurity company (FTNT) 32.2% more.
- Axon Company, (AAXN) best known for making Tasers, rose 21.7%.
- Starbucks (SEX) rose 21.3% after hiring Brian Niccol as its new CEO.
- Clorox (160) up 20%. The household products company's earnings are offsetting weak sales.
S&P 500 Worst Performers: Supermicrocomputer (CISM) a 37.6% drop; Vaccine maker Moderna (mRNA) down 35.1%; discount retailer Dollar Tree (DLTR) with a fall of 31.1%; Intel, with a fall of 28.3%, and Walgreens Boots Alliance (AMB) down 22.1%.
Dow Highs: Walmart (WMT) up to 12.5%, Nike (OF) 11.3% more; and McDonalds (CDM) 8.8% more.
The losers: Chevron (CVX) Boeing falls 7.8% (bachelor of arts) 8.9% less and Intel.
The three most valuable companies saw their shares struggle. Apple rose by just 3.1%. Microsoft fell by 0.3%. Nvidia (NVDA) rose by 2%.
Target platforms (GOAL) rose 9.8%. Google's parent company, Alphabet (GOOGL) Tesla fell 4.8%. (TSLA) fell by 7.7%.
Related: Veteran fund manager sees world of trouble ahead for stocks
