Monday, September 01, 2014

Strong U.S. equity market in August, year to date numbers solid

What an August for U.S. equities.  Who would have predicted that in supposedly sleepy August there would be such a rally.  Every major U.S. index average was up more than 3% for the month, with many up in the 4% to 5% range.  Even the previously lagging small caps stepped up to participate.  Optimism about the U.S. economy, in an absolute and relative sense, overcame global turmoil and a continued cautious outlook by many.  Given that long term treasuries rose as well in the month, by 4.5% and are up almost 17% year to date, one could suggest that part of the reason for U.S. financial market's strength was in fact global turmoil.

What's next?  September for some reason, statistically speaking since 1950, is the worst month of the year for stocks.  Does summer produce some lethargy that is all of a sudden replaced by more discipline in September?  There is no answer to that here, but one could suggest this year that investors have room to give some back and feel little pain, and a modest pull back could be healthy for the market.  It would allow for more investors to feel comfortable stepping in and clear out the really weak hands.  It would set the stage for an end of year rally that would continue this long bull market recovery from March of 2009.

Small caps have been the one laggard this year, but there is some inconsistency there.  The small cap 600 and the Russell 2000 are up just 1% year to date, but the Russell 1000 and notably the Russell 3000 are up over 8% each.  That must explain the fact that while reading about the woeful performance of small caps, the indexes that are owned here seem to be doing fine.  Looking at more data, the one other surprise here was that TIPS are up 4.9% year to date, well ahead of the 3.2% for the total bond market.  They are held here in non-taxable accounts like a 401K and IRA's, but somehow I missed the fact that they had been on the rise.

Most observers do not see the S&P as overbought now, but most also are wary of looking for more growth from this point.  As is usual most of the time, there are no predictions here, but once we get through always dangerous October, a year end rally could be in the cards.    


Anonymous Anonymous said...

There is definitely room for a drop in the stock market now. It should be expected. Looking much beyond the present is difficult, but a the illusion of a strengthening U.S. economy makes further strength tenuous.

5:28 PM  

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