Stocks keep playing havoc with predictions
You made it, traders. That nightmare about the stock market you had as you slept on the beach in August didn’t come true. But there are a few things you should know about.
First, the good news: While firms from Goldman Sachs to Voya Asset Management warned everyone in July about the risk of late-summer turbulence and shrinking liquidity, peace has prevailed in the U.S. In fact, with the S&P 500 never swinging more than 0.8 percent on any given day, it was by some measures the calmest August since 1967.
American stocks have now risen in eight of the last nine weeks and closed at an all-time high on Wednesday. Up 8.5 percent year to date, the S&P 500 is less than 2 percentage points behind its gain at this time last year, which can be credited to surging earnings and U.S. gross domestic product that grew by more than 4 percent in the second quarter.
“One of the lessons that we all learned over and over again is try to cut through the noise and get to the fundamental driver of the stock market,” said Rich Weiss, chief investment officer and senior portfolio manager of multiasset strategies at American Century Investments. “And the major driver has been, is, and will continue to be the strength of our economy.”
Prolonging the good times into September will require navigating a calendar full of pitfalls. Of primary concern are emerging markets, where currency and other assets are weakening and some say contagion will worsen. The big risk is on the trade front with President Donald Trump said to want to move ahead with a plan to impose tariffs on $200 billion of Chinese imports as soon as next week.
Tech stocks, this year’s best-performing industry, will be in the spotlight, as executives from Twitter, Facebook and Google’s parent Alphabet begin testimony to Congress on Wednesday while Trump blasts about antitrust. Friday’s monthly payrolls data precede a policy meeting by Federal Reserve later in the month, when the central bank is expected to raise interest rates for an eighth time since 2015.
All are reasons to stay alert. Keith Parker, a strategist at UBS Group AG, predicted a drop in shares in September while Goldman Sachs’s Christian Mueller-Glissman recommended investors buy short-dated S&P 500 options to hedge correction risk.
“We see some catalysts for a pickup in volatility,” Mueller-Glissman wrote in a note this week. “Compared with last year’s low vol regime, the macro backdrop is less favorable, with global growth momentum negative, monetary policy tightening and more uncertainty on economic policy.”
August has been a study in contrasts, another month in which calm persisted in the U.S. despite jarring news. Daily volume dropped to an average of 6.1 billion shares, the second lowest since last October. Negative headlines flashed, from an escalation in trade tensions to emerging market turmoil to continued political chaos in Washington. Yet none was enough to rock the market out of its slumber.