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The S&P 500 capped a fifth straight monthly gain, its longest winning streak in nearly two years and clinched its strongest August performance since the mid-1980s. Gains were led by continued outperformance in stay-at-home technology companies, but markets received an extra boost from newly recovering industries that were previously adversely affected by rising COVID-19 infection rates. Four of the top ten best performing companies in the S&P 500 were airlines, cruise ship firms or casino operators. The group gained an average of 32.6% as opposed to the 31.7% average of the remaining six top performers. Additional bullish catalysts included better-than-expected corporate earnings, improved #consumer spending and a major shift in Federal Reserve inflation policy.
Large cap (S&P 500) stocks performed best relative to mid and small caps last month. The Russell 2000 small cap-focused index rose 5.6% in August, while the Russell Mid Cap Index trailed, up 3.5%. Large cap growth stocks surged 10.3% in August, far outpacing their Value counterparts that were up 4.1%. Growth is likewise outperforming value for the year, up 30.5% YTD while value trimmed its YTD loss to -9.4%.
As the sector performance table illustrates below, nine of the 11 major equity sector groups posted August gains, led by Technology, Consumer Discretionary and Communication Services. In rare alignment, these same three sectors are top YTD gainers in the exact same order. Energy and Utilities were both among the biggest laggards in both periods.
Foreign equity markets continued to recover but gains were again uneven and trailed U.S. performance last month and YTD. Emerging markets widely underperformed relative to the U.S. benchmark S&P 500 gains by 5%. Developed markets outside the U.S. and Canada trailed the American benchmark by a smaller 2% differential. Globally, the MSCI All-Country World Index advanced 6.1%, while the same index excluding the USA gained 4.3%.
U.S. Treasury yields notably advanced following central bank policy action that implements “average inflation targeting” which allows inflation to run above the Fed’s 2% prior threshold before policymaker’s raise rates to cool prices. This de facto stimulus helped send the yield on benchmark 10-year notes up over 17 basis points to end August at 0.73%. Treasurys of all maturities, as measured by the Bloomberg Barclays U.S. Government Index gave back all its July 1.1% gain, while the longer-term government bond index more than erased its 4.2% July gain, down 4.3% in August. Bond yield prices move in opposite direction to yields, so when yields improve, price returns drop. Investment-grade bonds of all types lost nearly 1% in August after rallying 1.5% the month prior. Meanwhile, August municipal bonds reversed just 0.5% of its 1.7% July gain. Lastly, higher-risk, non-investment grade high-yield corporate bonds performed best, up nearly 1% last month, extending a five-month winning streak to 16.4%.
U.S. WTI crude oil (+5.8%) capped a fourth monthly gain but has struggled to consistently hold above $43/barrel as the second wave of viral infections dampened a healthier demand outlook. The Bloomberg Commodities Index gained 6.7% last month.
This report is created by Cetera Investment Management LLC
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GlossaryThe Bloomberg Barclays Capital U.S. Aggregate Bond Index, which was originally called the Lehman Aggregate Bond Index, is a broad based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government–related and corporate debt securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS and CMBS (agency and non-agency) debt securities that are rated at least Baa3 by Moody’s and BBB- by S&P. Taxable municipals, including Build America bonds and a small amount of foreign bonds traded in U.S. markets are also included. Eligible bonds must have at least one year until final maturity, but in practice the index holdings has a fluctuating average life of around 8.25 years. This total return index, created in 1986 with history backfilled to January 1, 1976, is unhedged and rebalances monthly.
The Bloomberg Barclays US Municipal Bond Index covers the USD-denominated long-term tax exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds, and prerefunded bonds. Eligible securities must be rated investment grade (Baa3/BBB- or higher) by Moody’s and S&P and have at least one year until final maturity, but in practice the index holding have a fluctuating average life of around 12.8 years. This total return index is unhedged and rebalances monthly.
The Bloomberg Barclays US Corporate High Yield Index measures the USD-denominated, non-investment grade, fixed-rate, taxable corporate bond market. Securities are classified as high yield if the middle rating of Moody's, Fitch, and S&P is Ba1/BB+/BB+ or below, excluding emerging market debt. Payment-in-kind and bonds with predetermined step-up coupon provisions are also included. Eligible securities must have at least one year until final maturity, but in practice the index holdings has a fluctuating average life of around 6.3 years. This total return unhedged index was created in 1986, with history backfilled to July 1, 1983 and rebalances monthly.
The Barclays U.S. Government Bond Index is comprised of the U.S. Treasury and U.S. Agency Indices. The index includes U.S. dollar-denominated, fixed-rate, nominal US Treasuries and US agency debentures (securities issued by US government owned or government sponsored entities, and debt explicitly guaranteed by the US government). The US Government Index is a component of the U.S. Government/Credit and U.S. Aggregate Indices, and eligible securities also contribute to the multi-currency Global Aggregate Index. The U.S. Government Index has an inception date of January 1, 1973.
The Bloomberg Commodity Index is a broadly diversified index that allows investors to track commodity futures through a single, simple measure. It is composed of futures contracts on physical commodities and is designed to minimize concentration in any one commodity or sector. It currently includes 19 commodity futures in five groups. No one commodity can comprise less than 2% or more than 15% of the index, and no group can represent more than 33% of the index (as of the annual reweightings of the components).
The Cboe Volatility Index® (VIX®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices.
The MSCI EAFE is designed to measure the equity market performance of developed markets (Europe, Australasia, Far East) excluding the U.S. and Canada. The Index is market-capitalization weighted.
The MSCI Emerging Markets is designed to measure equity market performance in global emerging markets. It is a float-adjusted market capitalization index.
The MSCI All-Country World Index (ACWI) is a market cap weighted index designed to represent performance of the full opportunity set of large- and mid-cap stocks across 23 developed and 26 emerging markets, covering more than 2,700 companies across 11 sectors and approximately 85% of the free float-adjusted market capitalization in each market.
The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000 Index companies with higher price-to-book ratios and higher forecasted growth values.
The Russell 1000 Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 Index companies with lower price-to-book ratios and lower forecasted growth values.
The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe and is a subset of the Russell 3000 Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership.
The Russell 3000 Index measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market.
The Russell Midcap Index measures the performance of the mid-cap segment of the U.S. equity universe and is a subset of the Russell 1000 Index. It includes approximately 800 of the smallest securities based on a combination of their market cap and current index membership. The Russell Midcap represents approximately 31% of the total market capitalization of the Russell 1000 companies.
The S&P BSE SENSEX Index is a free-float market-weighted index of 30 well-established and financially sound stocks on the Bombay Stock Exchange, representative of various industrial sectors of the Indian economy.
The S&P 500 is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ.
The NASDAQ Composite Index includes all domestic and international based common type stocks listed on The NASDAQ Stock Market. The NASDAQ Composite Index is a broad-based capitalization-weighted index.
The Shanghai Composite Index is a stock market index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange.
The U.S. Dollar Index is a weighted geometric mean that provides a value measure of the United States dollar relative to a basket of major foreign currencies. The index, often carrying a USDX or DXY moniker, started in March 1973, beginning with a value of the U.S. Dollar Index at 100.000. It has since reached a February 1985 high of 164.720, and has been as low as 70.698 in March 2008.
West Texas Intermediate (WTI) is a crude oil stream produced in Texas and southern Oklahoma which serves as a reference or "marker" for pricing a number of other crude streams. WTI is the underlying commodity of the New York Mercantile Exchange's oil futures contracts.