Strong corporate earnings reports helped July turn in the 2nd best monthly performance this year and that momentum continued into August. The strengthening economy was expected to make this earnings season a strong one, but the reports were generally been better than even the optimistic expectations. Approximately half of the companies in the S&P 500 reported in July and most of the remaining companies reported in August. More than 80% of companies did better than expected, that is the highest “beat” rate since FactSet began tracking that metric in 2008. Earnings were certainly the primary focus of the market but, as has been the case over the last couple of months, it did react to any news on trade. We did see signs during August that the tough stance Trump has been taking on trade is beginning to work and the market responded favorably to news of trade agreements. The market spent very little time trading below the July close as the tech heavy NASDAQ and the S&P 500 rallied to multiple new all-time highs. At the end of the month, driven primarily by technology stocks, the S&P 500 had gained 3% and is now 8.5% higher for the year.
The month began with a strong quarterly report from Apple that took that stock above $200 for the first time ever, in what was simply the beginning of a month that saw the world’s largest company gain nearly 20%. The first Friday of the month we learned a fewer than expected 157,000 new jobs were created in July, but the market shrugged that off in favor of strong earnings and the week ended with the S&P 500 gaining .9%. The first full week of the month was a battle between strong earnings and trade war concerns, with trade war concerns winning out and sending the S&P 500 down .2%. The focus during the first few days of the second full week was Turkey and concerns their weakening economy could spread to other countries. However, that concern was quickly erased on Thursday when there was news that the US/China trade talks were back on. That news sent the Dow up nearly 400 points, its best day in 4 months, and helped the S&P 500 gain .6% for a week that started out sharply lower. During the third full week of the month Trump’s legal woes weighed in the early going, but positive economic comments from Fed Chief Powell at week’s end helped the S&P 500 end the week with a gain of .9%. On the 23rd of the month the current rally, off the 2009 lows, became the longest bull market in history. The final week of the month saw both the S&P 500 and NASDAQ Composite set multiple new all-time highs, but trade war concerns once again surfaced on Thursday, leaving the S&P 500 with a .5% gain for the week.
September has historically been the worst month of the year for the stock market, with an average rate of return over the last 80 years of -1%. It is also the only month that has ended lower more often than higher (55%). However, as we have said in the past, history is simply a guide, not an absolute. In fact, in 2013 September was one of the best months of the year. With that said, coming into what has historically been a difficult month for stocks, with the market near an all-time high, it is certainly a time to be cautious. With earnings season winding down trade is likely to be the focus, with anything regarding the upcoming mid-term election being a close second. Many market participants credit Trump for the strong economy and strong market so, anything that puts his Presidency in jeopardy, would likely cause a negative reaction in the stock market. A pull back in the market could come at any time but, as we have been saying for several months, we would be buyers of that dip.
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