August Market Review

September 18, 2015

Shortly after the end of each month, our Chief Investment Strategist David Klassen provides highlights of the market and our funds’ performance. Following is a summarized review of August — 

Markets

  • Global equity markets experienced their worst month of performance since May, 2012. The S&P 500, which tracks domestic large cap stocks, briefly entered correction territory, (down 10% from its peak) for the first time since 2011, and ended the month of August down 6.03%, and down 2.88% year-to-date (YTD). The Russell 2000 Index, which tracks domestic small cap stocks, was down 6.28% in August and is down 2.97% YTD.
  • The international developed equity index (MSCI EAFE) was down 7.36% in August and is down 0.21% YTD. The emerging markets index (MSCI EM) was the worst performing international index, down 9.04% in August and down 12.85% YTD. China, specifically, experienced steep declines for the second consecutive month.
  • The Japanese Index (Nikkei 225) was down 8.23% in August, but is up 8.25% YTD.
  • In August, the 30-year bond yield increased 5bps to 2.96%, the 10-year increased 4bps to 2.22%, while the 5-year increased by 2bps to 1.55%. Bond yields move opposite prices, so treasury prices generally decreased. The Federal Reserve again left the overnight lending rate unchanged at 0-0.25%.
  • Corporate bond prices decreased in August, with the Barclays Aggregate Index down 0.14% for August, but up 0.45% YTD. The Credit Suisse Leveraged Loans Index (bank loans) was down 0.65% for August, but still up 2.28% YTD.

Economic & Geopolitical Headlines 

  • The US economy, measured by real gross domestic product (GDP), increased at an annual rate of 3.7% in the second quarter of 2015, according to “second” estimates released by the Bureau of Economic Analysis. This release shows that the US economy is growing at a pace that appears strong relative to most international economies. This increase follows a revised, higher, annual growth rate of 0.6% for the first quarter of 2015.
  • The Federal Reserve continues to state that they are monitoring wages and the tightening of the labor market as signals to indicate a raise in short-term interest rates is appropriate. Federal officials indicated that rates could be moved as early as September. However, equity market volatility and losses have many participants doubting that the Fed will raise rates in the near-term.
  • Economic activity in the manufacturing sector saw a second month of slower growth while remaining in expansion, with a reading of 51.1 in August according to the Institute for Supply Management (ISM) versus 52.7 in July, a decrease of 1.6 percentage points. A reading above 50 is considered economic expansion.
  • US job growth continues to increase. The Labor Department reported total nonfarm payroll employment increased 173,000 in August. The unemployment rate and the number of unemployed persons edged down to 5.1 percent and 8.0 million respectively. June job gains were revised from +231,000 to +245,000, and the change for July was revised from +215,000 to +245,000 respectively. With these revisions, employment gains in June and July combined were 44,000 higher than previously reported.
 
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