Monthly Market Wrap: August 2021
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As our CEO Sean Brown recently noted, “despite what macroeconomic textbooks say, supply and demand don’t always cooperate with each other.” This statement is portrayed by the current relationship between US Job Openings and Unemployed Persons. While you’d expect job openings to decrease along with the unemployment rate (with previously unemployed persons filling job vacancies), the reality is not so simple. In fact, despite the number of unemployed persons gradually falling from 2010 onward—and the employment-population ratio increasing— job openings kept growing. When job openings and unemployment reached an equilibrium in early 2018, the two metrics moved in tandem up until the COVID-19 pandemic took hold. Now, the relationship is back to breaking your econ professor’s number one rule—but this time, the growing population is less employed as a whole. One thing that probably won’t fall out of demand anytime soon? “Help Wanted” signs.
Even as summer winds down and vacationers put their sailboats away, COVID-19 cases in the US continue to storm the seas. The spike—on some days surpassing daily totals from last winter—was enough to prompt a resurgence of restrictions, notably mask mandates in large metropolitan areas and the European Union’s removal of the US from its travel “safe list”.
As the summer heat is blown away by the cool breeze of fall, we’ll take a few moments to soak up these key developments from August:
• Off the YCharts! The Great Fall of China
• Major Index Returns: NASDAQ Surges, EM Index Rallies
• Sector Movement: 10 of 11 Positive, Energy Lags Again
• Hot Stocks of the Month: Gaming Bets Pay Off, Tech Surges
• Laggards & Losers: Car Makers and Payment Processors Suffer Chip Errors
• Economic Data: Unemployment Falls, Job Openings Hit New High
Off the YCharts! The Great Fall of China
After a July that sent MSCI’s China index 14.2% lower due to regulatory and nationalizing moves from the Chinese government, many investors are wondering what the future holds for their China-based securities. As Charlie Bilello recently discussed on our August 5 Charts to Show Your Clients Webinar, had you been fully invested in either Chinese or US equities from the beginning of 2000 to today, your returns would now be about equal—despite China’s impressive GDP growth.
In 2007, valuations of Chinese equities were double those of the US. Since then, the US has steadily outperformed China—to the point where the US CAPE Ratio is now double that of China’s. The two countries have essentially flip-flopped valuations from where they stood in 2007. Will there be a changing of the guard in the outperforming country as well?
Major Index Returns: NASDAQ Surges, EM Index Rallies
The NASDAQ finished August 4.1% higher thanks to growth re-topping value, a trend prompted by a late-month rally in tech shares. The S&P 500 jumped 3% on the month, while International Developed Markets rose 1.8%. High-yield corporate bonds added 0.5% and the Global Aggregate Bond Index slipped 0.4%. Following a ravaging July for MSCI Emerging Markets, the heavily China-weighted index was on track for the same type of month but managed to finish up 2.7% thanks to major bounces in Chinese markets.
Sector Movement: 10 of 11 Positive, Energy Lags Again
Except for Energy, August was a positive month across the board. Financials was the leader, gaining 5.2% mostly due to a broadening economic recovery that could prompt higher rates sooner. Communication Services, Utilities, and Technology were not far behind, the former two each rising 3.9% and technology finishing up 3.6%. Energy logged its second straight losing month, finishing down 2% as a result of oil prices tumbling again, this time 11% in August.
Hot Stocks of the Month: Gaming Bets Pay Off, Tech Surges
August was a fabulous month for Technology and Consumer Cyclical stocks alike, but especially for gaming stocks Penn National Gaming (PENN) and Caesars Entertainment (CZR). Both rebounded from a down July as more states legalized sports wagering and the football season—the industry’s highest-volume sport—draws near. On the tech side of things, August’s top performer Paycom Software (PAYC) got a boost early in the month thanks to an avalanche of price target upgrades and its healthy earnings beat. This too was the case for cybersecurity companies Gartner (IT), Fortinet (FTNT), and Synopsys (SNPS).
Laggards & Losers: Car Makers and Payment Processors Suffer Chip Errors
A few Consumer Cyclical companies made our Laggards & Losers list as well, notably General Motors (GM) who fell 13.8% in August due to the continued global semiconductor shortage affecting vehicle production. Plus, GM recalled additional Chevrolet Bolts for a possible battery defect. Payment processor Global Payments (GPN) cooled off in August thanks to a slew of price target downgrades, bringing international payments giant Mastercard (MA) down with it.
IPG Photonics Corp (IPGP), Bath & Body Works (BBWI), Perrigo (PRGO), Fidelity National Information Services (FIS), BorgWarner (BWA), FMC Corp (FMC), and Cardinal Health (CAH) round out August’s ten worst performers.
Featured Market & Advisor News
How will a capital gains hike affect red-hot RIA M&A market? (InvestmentNews)
Wall Street Is the Most Bullish on Stocks in Almost Two Decades (WealthManagement.com)
Economic Data: Unemployment Falls, Job Openings Hit New High
July’s unemployment rate clocked in at 5.4%, still almost 2 points higher than its last pre-pandemic print in February 2020 but setting another pandemic-era low. Initial jobless claims fell to 340,000 as of August 28st, a decrease of 60,000 since the end of last month. Job openings, however, continue to sit at an all-time high, crossing 10 million for the first time at 10.07M for the end of June.
Production and Sales
After three straight months of declines, US New Single Family Houses Sold rose 1% in July. Existing Home Months’ Supply continued its steady rise, increasing 10 basis points to 2.6 in July. As a result, the US house price index MoM change cooled off from its May all-time high but still rose 1.6% in June.
Prices and spending regressed from their record highs in June. The US Consumer Price Index rose 0.5% in July, down from 0.9% in June, its highest MoM increase since June of 2008, while consumer spending (PCE) was up by 0.4%.
Have a great September! 📈
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