Led by technology and large-cap companies, the S&P 500 is on pace to post its best summer performance in over 80 years.
The S&P 500 hit a new high on August 18 for the first time since February, making up for the losses in March, and continued to climb through the month. Technology and large-cap companies led the way, continuing the “tale of two markets” hidden inside the mainstream indices, a familiar story throughout the COVID-19 era.
“August has historically been relatively weak for the broad-market S&P 500, but that didn’t stop the equity index climbing over 7% for the month as the S&P 500 is on pace to post its best summer performance (+18% post-Memorial Day) since 1938,” said Chief Investment Officer Larry Adam, “despite headwinds from COVID-19, a heated election and a Congressional stalemate over a new round of stimulus.”
The markets may have been buoyed by a stronger-than-expected earnings season, progress on COVID-19 therapeutics and vaccines, improving economic data and continued stimulus from the Federal Reserve.
There is also evidence of strength underneath the top performers, with gains being made in a fairly broad swath of the market, with second quarter corporate earnings finishing 23% above estimates, led by the performance of Consumer Discretionary stocks, Industrials, Health Care and Materials. “From the economic recovery to a possible vaccine, more records may occur by year-end. This year has proven to be tumultuous for the markets, but above all, we encourage investors to keep their long-term objectives and asset allocation in mind,” Adam said.
The strength of the market since the struggles of March doesn’t tell the full story. There are still concerns about coronavirus transmission in newly reopened schools, and market observers continue to keep an eye on unemployment figures and household earnings.
“The economic outlook continues to depend on the virus, the efforts to contain it and the degree of government support. Recent reports have painted a mixed picture of the economy,” said Chief Economist Scott Brown.