As we discussed here last week, August has been one of the worst months for stocks in recent decades. After last week’s more than 3% drop in the S&P 500 Index, seasonality could be taking hold once again in U.S. equities.
Outside of August’s track record, we’ve identified our three keys for the market this month:
1) Trade. Trade tensions will almost certainly be the biggest stock market driver in August. They certainly have been so far. U.S. and China negotiators have a meeting scheduled for September, which takes on greater importance after President Trump’s latest tariff threat last week.
“We still expect progress on trade and tariff reductions in the coming months,” noted LPL Chief Investment Strategist John Lynch. “However, we are mindful that the dispute could drag well into 2020 after this latest escalation, which may lead to more market volatility like we have experienced over the past several days.”
2) The Federal Reserve (Fed). After the expected 25 basis point (0.25%) cut July 31, bond market participants questioned whether they were being too aggressive in pricing in future cuts. We expect the Fed to cut rates at least one more time this year as trade tensions continue to simmer, which may help provide support for stocks. At the same time, bouts of volatility around shifting Fed expectations would not surprise us.
3) Earnings. Earnings season is winding down, but it could still move markets this month with 110 S&P 500 companies left to report. We expect second quarter earnings for the S&P 500 to be fractionally positive despite some sizable headwinds, including tariffs, the strong U.S. dollar, and Boeing’s sizable loss. The impact of this month’s earnings news may be drowned out by trade, but we do expect improvement later this year and into 2020 as those risks potentially abate.
Look for more of our thoughts on the month ahead in today’s Weekly Market Commentary, due out later today.
IMPORTANT DISCLOSURES
Please see the Midyear Outlook 2019: FUNDAMENTAL: How to Focus on What Really Matters in the Markets for additional description and disclosure.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.
All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. All performance referenced is historical and is no guarantee of future results.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
All company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.
This Research material was prepared by LPL Financial, LLC.
Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).
Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL Financial affiliate, please note LPL Financial makes no representation with respect to such entity.
- Not Insured by FDIC/NCUA or Any Other Government Agency
- Not Bank/Credit Union Guaranteed
- Not Bank/Credit Union Deposits or Obligations
- May Lose Value
For Public Use | Tracking # 1-879433