August was Great for Most Sectors, Will September Follow Through?

Dating back to 1928, the average September return on the S&P 500 has been a loss of 0.99%. The U.S. government fiscal year ends September 30th which brings its own set of complications to cause markets to retreat. However, after an August where four major U.S. indices show gains from 1.28% to 4.76%, the momentum heading into September remains strong.

The one thing investors in past years have found causes volatility as the calendar approaches October is the debates surrounding the debt ceiling and whether the government will have enough money available to pay its bills and keep its employees working. The debt ceiling or limit on government borrowing was suspended last year. That limit was reinstated on August 1st of this year, causing U.S.Treasury Secretary Janet Yellen to become more of a spendthrift until the new budget, effective October 1^st, passes.

The stock and bond markets continue to trust Federal Reserve Chairman Powell on his assessment that the inflation we are now experiencing is transitory. With that belief, the bond markets have behaved well while the stock market reaches for the sky.

Index Performance August 2021

The tech-heavy Nasdaq 100 led the way during the tail end of August and outperformed the S&P 500, Russell 2000, and Dow 30 by wide margins. Ending the month 4.76% ahead of where it began, places the Nasdaq 1.59% ahead of the S&P index, which finished 3.76% ahead of July’s close. The small-cap Russell 2000 heads into September strong after having rallied the last week of August finishing the month 3.05% above where it began. The Dow 30 industrials put in a performance that would have been respectable at any other time in history, but it pales in comparison to its rivals.

Sector Performance

Performance of the S&P sectors shows the energy sector is having a difficult time during July. Although the priorities of moving away from fossil fuels were put to the test during the month President Biden asking OPEC for more output and California adding five gas-fired plants, the future of traditional energy has very little support. All other sectors measured in this recap were positive during September. The Utility sector, turned in the overall best performance with a month over month of up 5.53%. Also worth noting are the Financials, up 4.67%. Many companies within this sector would benefit from a more positively sloped yield curve. The zero-interest rate overnight policy coupled with a Fed tapering would tend to steepen the curve for these institutions.

Take-Away

There is a massive amount of money in the economy which is looking for the best return. This is driving asset prices including currencies, crypto assets, and real estate. The trend in the various stock indices has continued upward without much pause since April of 2020.

The sectors doing the best are those that benefit from support from the policies coming out of Washington, a steepened yield curve, and high demand as an aftermath of pandemic-related reduced activity.

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