Monthly Market Insights | August 2022
Stocks posted big numbers in July, erasing some of their first-half losses. Investor sentiment was lifted by receding inflation and recession worries and a better-than-expected start to the second quarter earnings season.
The Dow Jones Industrial Average gained 6.73 percent, while the Standard & Poor’s 500 Index rose 9.11 percent. The Nasdaq Composite led, picking up 12.35 percent.1
Stocks have been under pressure all year from rising inflation and slowing economic growth. There weren’t many signs in July that suggested either inflation had cooled or that the economy was rebounding. Nevertheless, investors saw falling energy prices and persistent strength in the labor market as hopeful signs that any economic downturn may not be as severe as some expect.
Earnings Help Rally
Investor sentiment improved further as earnings season got underway in the back half of the month. This gathering optimism was not a result of exceptional earnings results. Rising enthusiasm was perhaps more attributable to the fact that earnings were not nearly as weak as many had feared. Companies painted a picture of a reasonably healthy consumer and businesses effectively navigating their inflation and supply chain challenges.
Big Week of Data
The month of July culminated in perhaps the most critical week of the summer for the market, with investors awaiting information on corporate earnings, a Fed meeting decision on interest rates, and the release of an initial estimate of the second quarter GDP.
Earnings came out of the gate a bit shaky as a big box retailer missed earnings and guided future earnings estimates lower. However, subsequent earnings reports from big technology companies impressed investors. Markets were further relieved by the Fed’s decision to hike rates by 75 basis points and Fed Chair Powell’s comment that the pace of future rate hikes may slow.
Investors shrugged off a negative second quarter gross domestic product report as positive earnings surprises drove stocks higher into the close of the month.
All 11 sectors posted gains for the month, including Communications Services (+3.87 percent), Consumer Discretionary (+18.44 percent), Consumer Staples (+3.20 percent), Financials (+7.19 percent), Health Care (+3.24 percent), Industrials (+9.50 percent), Materials (+6.15 percent), Real Estate (+8.52 percent), Energy (+9.66 percent), Technology (+13.45 percent), and Utilities (+5.45 percent).2
What Investors May Be Talking About in August
Historically, August has been positive for stocks, with an average return of 0.7 percent for the month. August also has more positive monthly performances (55) than negative (39).3
But August is also known for unexpected national and world events that have moved the markets in unexpected ways. Events that have occurred in August include the Asian currency crisis in 1997, the Long-Term Capital Management collapse in 1998, the downgrade of U.S. debt in 2011, and China’s currency crisis in 2015.
During the month, the government will release a string of economic reports to give the Fed fresh insight into the economy for its late September meeting. After September, the Fed only has two scheduled meetings for the rest of 2022—one in early November and one in mid-December.
Overseas markets rallied following the lead of the U.S. markets. The MSCI-EAFE Index gained 3.74 percent last month.4
Similar to U.S. markets, major European markets overcame growing recession fears and deepening energy woes. France picked up 8.87 percent, Italy rose 5.71 percent, Germany 5.48 percent, and the U.K. tacked on 3.54 percent.5
Pacific Rim markets were mostly higher, except for Hong Kong, which lost 7.79 percent. Australia gained 5.74 percent and Japan climbed 5.34 percent.6
Gross Domestic Product (GDP)
The economy shrank at an annualized rate of 0.9 percent in the second quarter as consumer spending moderated and businesses reduced inventories. GDP posted its second straight quarter of negative growth, meeting the technical definition of a recession. Unlike most recessions, however, the past two quarters have been marked by strong employer hiring.7
Non-farm payrolls increased by 372,000 in June, with the unemployment rate unchanged at 3.6 percent. Wages increased 5.1 percent year-over-year.8
Retail sales rose 1.0 percent in June, beating consensus estimates.9
Industrial production declined 0.2 percent in June, though it was higher by 6.1 percent in the second quarter.10
Housing starts slipped 2.0 percent as rising prices and mortgage rates weighed on buyer demand. It was the second consecutive month of declines.11
Existing home sales fell 5.4 percent, while the median sales price climbed 13.4 percent to another record high of $416,000.12
New home sales declined 8.1 percent in June, falling to levels not seen since April 2020. Year-over-year sales were down 17.4 percent.13
Consumer Price Index (CPI)
Prices of consumer goods and services climbed 1.3 percent in June. The 12-month increase was 9.1 percent, a 40+ year high. Core inflation (excluding volatile food and energy prices) remained elevated as well, rising 0.7 percent from May’s levels and 5.9 percent from a year ago.14
Durable Goods Orders
Orders for products designed to last three years or more rose 1.9 percent. When excluding defense spending, durable goods orders were up a more modest 0.4 percent.15
Fed officials agreed to a 0.75 percentage point hike in the federal funds rate, acknowledging that the economy has slowed since the Federal Open Market Committee in June.16
In a post-meeting press conference Fed Chair Powell said that future rate hikes would be made on a meeting-by-meeting basis and that it may become appropriate to slow the pace of future interest rate hikes.16
By the Numbers: National Smile Week
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite, LLC, is not affiliated with the named representative, broker-dealer, or state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.
Investing involves risks, and investment decisions should be based on your own goals, time horizon and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.
Any companies mentioned are for illustrative purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Any investment should be consistent with your objectives, timeframe, and risk tolerance.
The forecasts or forward-looking statements are based on assumptions, subject to revision without notice, and may not materialize.
The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results.
The Dow Jones Industrial Average is an unmanaged index that is generally considered representative of large-capitalization companies on the U.S. stock market. The S&P 500 Composite Index is an unmanaged group of securities considered to be representative of the stock market in general. The Nasdaq Composite is an index of the common stocks and similar securities listed on the Nasdaq stock market and considered a broad indicator of the performance of stocks of technology and growth companies. The Russell 1000 Index is an index that measures the performance of the highest-ranking 1,000 stocks in the Russell 3000 Index, which is comprised of 3,000 of the largest U.S. stocks. The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) and serves as a benchmark for the performance in major international equity markets, as represented by 21 major MSCI indexes from Europe, Australia, and Southeast Asia. Index performance is not indicative of the past performance of a particular investment. Past performance does not guarantee future results. Individuals cannot invest directly in an index. The return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.
International investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risks unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility.
The Hang Seng Index is a benchmark index for the blue-chip stocks traded on the Hong Kong Stock Exchange. The KOSPI is an index of all stocks traded on the Korean Stock Exchange. The Nikkei 225 is a stock market index for the Tokyo Stock Exchange. The SENSEX is a stock market index of 30 companies listed on the Bombay Stock Exchange. The Jakarta Composite Index is an index of all stocks that are traded on the Indonesia Stock Exchange. The Bovespa Index tracks 50 stocks traded on the Sao Paulo Stock, Mercantile, & Futures Exchange. The IPC Index measures the companies listed on the Mexican Stock Exchange. The MERVAL tracks the performance of large companies based in Argentina. The ASX 200 Index is an index of stocks listed on the Australian Securities Exchange. The DAX is a market index consisting of the 30 German companies trading on the Frankfurt Stock Exchange. The CAC 40 is a benchmark for the 40 most significant companies on the French Stock Market Exchange. The Dow Jones Russia Index measures the performance of leading Russian Global Depositary Receipts (GDRs) that trade on the London Stock Exchange. The FTSE 100 Index is an index of the 100 companies with the highest market capitalization listed on the London Stock Exchange.
Please consult your financial professional for additional information.
Copyright 2022 FMG Suite.
1. WSJ.com, July 31, 2022
2. Sector.SPDR.com, July 31, 2022
3. Yardeni Research, Inc., 2022
4. MSCI.com, July 31, 2022
5. MSCI.com, July 31, 2022
6. MSCI.com, July 31, 2022
7. Bureau of Economic Analysis, July 28, 2022
8. Bureau of Labor Statistics, July 8, 2022
9. CNBC.com, July 15, 2022
10. FederalReserve.gov, July 15, 2022
11. WSJ.com, July 19, 2022
12. CNBC.com, July 20, 2022
13. MarketWatch.com, July 26, 2022
14. CNBC.com, July 13, 2022
15. WSJ.com, July 27, 2022
16. CNBC.com, July 27, 2022
17. Amboy Orthodontics, October 13, 2021
18. Duvall Dental Center, June 30, 2020
19. American Orthodontic Society, July 14, 2021
20. MouthHealthy.org, March 31, 2021
21. WebMD.com, August 11, 2021
22. DentaGama.com, January 9, 2022