Market Powers Higher in August
August surprised market watchers as all three major indexes climbed higher in a month which is often a laggard. The highlight of the month was Fed Chairman Powell’s keynote address at the Jackson Hole Symposium on August 22nd. He was very deliberate in his remarks to stress that any decision the FOMC makes regarding rate cuts will not be political. It will be based on the data. Then he surprised the world by taking a softer approach than we have heard from him all year. He opened the door to a possible rate cut when the Committee meets in mid-September. He referenced a weaker labor market as justification and stressed that nothing is definite, but it may be time to cut rates.
There was a broad market rally following his remarks on the 22nd so there is no question that investors are ready for a rate cut. The Dow surged to the end of the month and set a new all-time high. The S&P 500 and the Nasdaq also closed the month higher.
The Big 6 Banks - JP Morgan Chase, Bank of America, Citi, Wells Fargo, Goldman, and Morgan Stanley – are all pushing to new highs. There are several reasons for this growth in bank stocks. Deregulation will help the bottom line. Perhaps more importantly, banks are responding positively to potential interest rate cuts. Traditionally banks want higher interest rates to improve their margin between loans and deposits, but in the current environment, banks cheer potential rate cuts because it should improve the business climate. They expect increased lending and investment activity, and this growth should outweigh any short-term negative impact on margins. Banks are also on the cutting edge of technology and aggressively embracing AI to cut costs, improve efficiency, and fight cybercrime. This surge in bank stocks is not just confined to the US, it is a global rally.
The recent move in gold is noteworthy. After a strong run for thirteen months, gold has consolidated for the past 4 months, trading sideways in a fairly tight range. That was discouraging to some investors and caused them to think the run in gold is over. Actually, it is quite normal for there to be a price consolidation after such spectacular gains. In the last couple days in August, gold broke out of its range to post new all-time highs. Gold mining stocks are doing well, too. Silver posted a fourteen year high in the last days of August and we anticipate it will follow gold. The trend is up, and patience could well be rewarded.
All eyes are on economic reports leading up to the Fed meeting this month. The chairman will address the press at the close of the meeting on the 17th and news of a rate cut is a big deal. Many think a cut of 0.25% is already factored into the market, so if the Committee were to disappoint investors, a pullback in the market is likely.
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Written by Connie C. Guelich, CFP, AEP, CLU, ChFC. This represents our views at the time of this writing, and it is subject to change. It is not intended to be personal investment advice. If you would like to discuss your own account, please don’t hesitate to call us.