U.S. stocks finished August largely unchanged. The final day of trading brought the market into positive territory for the month, with a 0.3 percent gain for August. Larger-cap U.S. stocks (Vanguard 500 Index) are up over 11.8 percent for the year to date and, notably, continued their monthly winning streak, which is now at 10 straight months of positive returns. While it may not seem particularly striking, the market has not had this long a streak of consecutive monthly gains since the mid-1990s. And there are only five other stretches of 10 months or longer dating back to the 1930s. In that regard, this streak is pretty remarkable.
Return dispersion across sectors this month was more evident than in July. In August, the energy sector fell 5.2 percent while technology and utilities sectors led the pack with 3.5 percent and 3.3 percent gains, respectively. The energy sector continues to be weighed down by low oil prices. Since recovering from a low of $20 in early 2016, prices have remained relatively steady in a range between $45 and $55 for the past year and a half. We are now three years removed from the summer of 2014 when oil prices started their big move downward. The relative performance for the energy sector over the last three years is stark: energy stocks have fallen by roughly 30 percent cumulatively, whereas the market as a whole is up a cumulative 30 percent.
While foreign developed stock markets (Vanguard FTSE Developed Markets ETF) are still well ahead of U.S. markets for the year to date, they were basically flat for the month. European stocks (Vanguard FTSE Europe ETF) also underperformed U.S. stocks during the month but are still up 20.7 percent this year.
Emerging-market stocks (Vanguard FTSE Emerging Markets ETF) performed the best among the equity asset classes. They gained 3 percent in August, bringing their year-to-date return to 24.8 percent.
Interest rates in the United States fell in August, resulting in positive gains for the bond market. The 10-year U.S. Treasury bond yield ended the month at 2.13 percent, or 17 basis points lower than where it started. Correspondingly, U.S. core bonds (Vanguard Total Bond Market Index) gained 0.9 percent during the month. U.S. high-yield spreads backed up a little during August, which hurt high-yield bond returns relative to the U.S. Treasury market.
As we push into the final month of the third quarter, investors’ focus is likely to shift toward the upcoming debt ceiling. U.S. Treasury secretary Steven Mnuchin has said Congress must raise the debt ceiling by the end of the month. Congress has been able to increase the debt limit each time this issue has come up in recent years; however, Washington, D.C. is rife with division unseen in recent years.