The S&P 500 has dropped by more than 3% this month, potentially ending a five-month upward trend. The index is set to record its weakest outcome since December, when it decreased by 5.9%. Nonetheless, this behavior during this period isn't unusual.
August has not been a good month for Wall Street so far.The S&P 500 is set to end a five-month winning streak with a decline of more than 3%, which would be its worst performance since December when it lost 5.9%. The Nasdaq Composite is on track to record its largest one-month drop since December, falling 5.2%. The Dow Jones Industrial Average has also dipped 3%.This month's pullbacks display a stark contrast with the market rally in the beginning of the year. The Nasdaq Composite's success in the first half of the year was the best in 40 years and the S&P 500's gains represented its most impressive start to a year since 2021.A number of things are causing strain on the market now, such as seasonal elements, worries about the global economy, and the Federal Reserve.
August is traditionally one of the weakest months of the year for the S&P 500, with an average of just 0.1% gain in the last 10 years and a 0.1% loss over the prior 20. Low trading volumes due to vacation-goers, and investors booking profits ahead of September (the worst month for the market historically) are two reasons for the slowdown. According to Oppenheimer technical strategist Ari Wald, support levels for the S&P 500 extend from 4,400 to 4,200.
China's most recent economic data has been disappointing. Retail sales and industrial production growth for July both fell short of estimates. This could be trouble for global markets, particularly those that are dependent on China for a substantial amount of revenue. Additionally, there is mounting apprehension over the possibility of another real estate crisis. Country Garden Holdings hit a record low and was excluded from the Hang Seng index while Evergrande initiated bankruptcy proceedings in the U.S. Consequently, the Chinese bank cut interest rates. Ed Yardeni of Yardeni Research stated that the country is in need of an American-style restructuring of its real estate sector that could reduce apartment prices, assist with debt restructuring, and bring in new equity investors. Until then, the impacts of this slowdown will continue to be observed.
There have been market worries this month that the Fed may maintain its benchmark lending rates at a higher level than expected. Those worries drove the 10-year Treasury note yield to its highest level since 2007. The central bank stated in their July meeting minutes that there is still a potential for "upside risks" to inflation that would necessitate additional rate increases. Currently, there is data that appears to suggest inflation is getting nearer to the Fed's 2% goal. Last July, the year-over-year Consumer Price Index was 9.1%, the highest rate in 40 years, while this July the CPI was 3.2%. On Friday, Chairman Jerome Powell will give an address at the yearly Jackson Hole Symposium, where investors will have an opportunity to gather more insights into the potential for future Fed tightening.
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