August Being August?

Historically, August has not been a great month for the stock market. This August is not bucking that trend.

August to date, the S&P 500 has given back (2.51%) and the Nasdaq (4.91%).

Perhaps the pullback was precipitated by Fitch’s US Debt downgrade and Moody’s downgrade of several banks last week.

I’m thinking the pullback is a combination of the debt downgrades and the fact the market has moved higher, a little too quickly.

Last week, the Consumer Price Index (CPI) had a monthly increase of .2% for both the headline number which includes food and energy and without food and energy. That’s an annual pace of 2.4%, close to the Federal Reserve’s target of 2%.  The year-over-year number with food and energy registered a reading of 3.2% and without, 4.7%. 

The Fed’s next meeting will be on September 20th. We’ll hear another CPI reading and a jobs number prior to the Fed.  Most believe the Fed will pause in September.

The Dow Jones was the lone index in the positive last week, moving higher by .62%.  The S&P pulled back slightly, down (.31%), the Nasdaq (1.9%) and the Russell 2000 (1.65%).

Bond yields moved higher with the 10-year US Treasury finishing the week with a yield of 4.158%. 

With the US Treasury issuing an abundance of new debt (recall the debt-ceiling increase) and the fact the Fed has now let about a Trillion dollars of bonds run off it’s balance sheet, bond yield bounce is expected. 

Let’s hope that the August pullback is just that, an August pullback!

Sector Performance

As of last Friday, 3 sectors of the S&P 500 are up over 30% year-to-date.  The 3 include Consumer Discretionary, Communications and TechnologyIndustrial stocks are up 10.65%, Materials 6.33%.

Energy is higher by 2.16%, Financials 1.78%, Real Estate .91%, and Consumer Staples .77%.

In the red for the year is Healthcare, down (.40%) and Utilities, off (8.68%).

Recently Healthcare and other out-of-favor sectors have been showing some life as Energy, Healthcare, Utilities, Real Estate have been moving higher. Let’s hope this broadening out of this rally will continue and our stock indexes move higher after the current expected pullback.

Credit Card Debt

As of the end of the 2nd Quarter this year, Credit Card debt is up to 1.031 trillion dollars. This is the highest since credit card debt started being tracked in 1999.

The states with the highest per person debt are Connecticut, followed by New York and yes, New Jersey. The average balance of those who do not pay off the debt each month stands at approximately $7,279.00. The interest rate is over 20%.

Add this to the fact people with Student Loans will soon begin paying their loans, we’ll need to see how this will impact overall consumer spending.  So far, the 30-day delinquency is 2.43%, not horrible, however increasing.

Consumer’s ability to spend will be extremely important for the economy and the markets over the next few months.

I suggest staying positive, as the Fed should be in the 9th inning of rate increases and corporate America is working feverishly to have profits again start to increase.

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