What’s trending in the market:

Inflation: The topic of inflation isn’t going to cool down anytime soon. However, economic data released throughout August indicated that Inflation has moderated. In addition, Fed chair Powell has again insisted during the Jackson Hole meeting that inflation would be temporary and not here to stay according to measures undertaken by the Fed, such as studying the prices of some items as lumber and used cars and wage growth which both have moderated recently, as well as taking a global view of how inflation abroad is well contained.

Delta variant fears persist: The threat of the rise in the number of Covid-19 cases due to the fast spread of the Delta variant worldwide is still affecting worldwide economies negatively. China has shown a slow in growth, the US is experiencing a surge in cases and hospitalization rates, while Australia and New Zealand have enforced new lockdowns due to rising cases.

Jackson Hole Meeting: Fed Chair Powell stated that the Fed will begin tapering its bond purchasing program by the end of the year, as the economy and the jobs market have made ‘substantial further progress’ towards the Fed stated targets. In addition, during his speech, Powell has made an important distinction between asset purchases and interest rates and reinstated that the Fed is not in a hurry to raise rates right after cutting on its bond purchases.

Market performance and reactions:

Dow Jones Industrial Average

The Dow Jones Industrial Average started August with a positive note, rising from 34,808 towards a new record high of 35,631 due to strong corporate results and signs of moderation in the level of Inflation. However, when the Fed signaled that it would start reducing its bond-buying program, the Index fell massively, reaching a low of 34.691. Shortly after, due to investors' Dip Buying mentality, the index recovered some of its losses, moving upwards to 35,510.

Nasdaq Composite

The beginning of August wasn’t so kind to the Nasdaq, as the index started the month on a negative note, reaching a low level of 14,424. However, as dip buyers focused on Tech stocks, mainly giants like Apple and Microsoft, the index rallied massively, breaking a new record high and reaching a level of 15,288. The Favorable economic environment for stocks with the accommodating fed policy helped maintain this upward movement in the index.

S&P 500

The S&P500 index started the month on a positive note, climbing up to a new record high of 4,480 However, due to the selloff in US stocks, the index dropped around 111 points to reach a low of 4,369. Nevertheless, the S&P500 had the sharpest rebound among US indices, as it jumped towards a new record high of 4,537, supported by the strong corporate earnings and the rally in big tech stocks.

VIX Index

The VIX, also known as a gauge of fear among market participants, has been falling over the past couple of months as the economic recovery is taking place and investor’s confidence is boosting markets. The index has moved lower in August than its previous level in July, but rose sharply when the markets dropped, before dropping massively again to reach a level of 16.62.

Yield Curves

Yields on 10-year notes have moved maintained almost the same levels as in July, reaching a low level of 1.151%, which is their biggest drop since March 2020.2 year bonds yields on the other hand have risen throughout August, reaching a high level of 0.252% and the gap between the 2 year and 10-year yields has narrowed.

Year to date recap:

*As of August 31, 2021.

Conclusion:

Throughout the beginning of August, the market sentiment was in fear due to threats of non-easing inflation and the increase in Covid-19 Delta variant cases. However, with the continuous support provided to the market by the Fed, and a still accommodative investing environment for stocks, equities rebounded strongly in the second half of August and formed new all-time highs.

The Fed’s Jackson Hole meeting has reassured investors at least till the end of the year that the market will remain supported by the Fed’s monetary stimulus, and further reassured that the rates won’t be hiked anytime soon which in turn resulted in raising the end of year targets for major US indices by global analysts.

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The content present in this article reflects the opinions and views of the author and does not necessarily reflect the position of CFI. The material published on this blog is provided for informational purposes only and should not be considered as investment advice. The Company is not responsible for the decisions and choices of the investor who has full and free will to make decisions that they see appropriate upon the investor’s sole discretion.

The data collected in producing this report is gathered from various trusted sources in order to provide the best independent information possible throughout the report.