The summer months are typically filled with days at the beach, barbeques with friends, vacations and baseball games long into the night. However, August was marked with extreme weather events across the country, the continued spread of the delta variant and unrest in the Middle East. Yet, despite the negative events and headlines, investors were rewarded with higher equity markets.
Brief Market Recap
U.S. stocks, for the most part, led the way as the S&P 500 breached the 4,500 price level for the first time and returned 3% for the month. Oil prices fell driven by supply-demand concerns, resulting in energy being the lone S&P 500 sector with a negative return. The U.S. economy remains resilient, despite the more modest uptick in consumer spending compared to prior months, likely attributed to the increase in coronavirus cases. Corporate fundamentals remain favorable, the unemployment rate is falling and leading indicators remain at strong levels on a year-over-year basis. Equity markets abroad were also positive, albeit slightly trailing the U.S.
Fixed income markets were a bit mixed in August, but bonds came under pressure as rates generally moved higher. The 10-year U.S. Treasury yield briefly fell below 1.2% early in the month, before settling at 1.3%. As a result, the Bloomberg U.S. Aggregate Bond Index returned -0.2% for the month. Investors remain committed in their preference for more risky segments of the fixed income market as the bid for yield continues. The Bloomberg U.S. Corporate High Yield Index gained 0.5% in August. Markets reacted favorably following Federal Reserve Chairman Jerome Powell’s comments that the central bank could begin to taper its bond buying program later in the year. While nothing official has been outlined just yet, we anticipate more specific guidance at one of the upcoming fall meetings and continue to believe interest rate hikes are not an immediate concern.
China – Year of the (Wayward) Ox
China has certainly made headlines in recent months, and it has not been particularly smooth sailing for investors. Government anti-trust investigations and crackdowns on data security have impacted many of the Chinese tech giants, such as Alibaba, Tencent and Didi. China’s -12.3% year-to-date return has significantly lagged the broader Emerging Market asset class which is up 2.8% year-to-date, as investors remain uncertain as to which industry may be impacted next. While the technology sector has been the most prominent recipient of the Chinese authorities’ attention to date, areas such as education are also being impacted as reforms are made to private education.
As examples, private tutoring service providers New Oriental and Tal Education have fallen over 70% since the end of the second quarter. The Chinese government has also signaled a renewed focus on “common prosperity” and social equity. The true impact on the corporate markets remains to be seen, but we have already witnessed two prominent technology companies, Tencent and Pinduoduo, announce they will be donating a large portion of profits to Chinese social programs.
While these actions are noteworthy and create some degree of investor apprehension, there are also positive indications coming out of Beijing. Futures contracts on the China A-shares market are expected to start trading in coming months, which should ultimately support foreign investor demand. In addition, there are signs the China Securities Regulatory Commission is making headway with U.S. regulators on accounting disclosures for Chinese companies. While China has a heavy influence on the collective fate of emerging markets, we remain committed to the emerging markets asset class as it presents an attractive potential source of return for portfolios, fully cognizant of the somewhat more volatile nature of the space.
August was wrought with developments around the world that create uncertainty for investors. We are mindful of elevated market valuations and the surge in the delta variant, which has the potential to, at least temporarily, hinder the pace of economic recovery. However, broader conditions are supportive of additional gains on the economic front and the forthcoming rollout of COVID-19 vaccine boosters should help ultimately assuage investors’ more immediate concerns. We remain guardedly optimistic as we head into the fall and our baseline expectation that thoughtful risk-taking in portfolios will likely be rewarded remains intact. A maturing economic backdrop and developments on the COVID front are likely to stoke bouts of volatility as we move toward the end of the year. Maintaining a long-term view and adhering to existing strategic allocations will provide the best opportunity for achieving favorable long-term investment outcomes for portfolios.
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US Capital Wealth Advisors, LLC (“USCWA”) is a Texas-based investment advisory firm registered with the United States Securities and Exchange Commission (“SEC”). As an independent, fee-only, registered investment advisor (RIA), USCWA is able to provide sophisticated, holistic wealth management services, with expanded access to investment solutions. We take our fiduciary responsibility to you seriously, which means we are committed to what is in your best interest. Our long-standing objective is to enable you to achieve your financial goals and to act as a trusted resource for you and your family.
This material is for informational purposes only and is an overview of the capital markets and is intended for educational and illustrative purposes only. It is not designed to cover every aspect of the markets and is not intended to be used as a general guide to investing or as a source of any specific investment recommendation. Readers should conduct their own research before making any investments. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument, investment product or service. In preparing this material we have relied upon data supplied to us by third parties. The information has been compiled from sources believed to be reliable, but no representation or warranty, express or implied, is made by US Capital Wealth Advisors, LLC, as to its accuracy, completeness or correctness. US Capital Wealth Advisors, LLC does not guarantee that the information supplied is accurate, complete, or timely, or make any warranties with regard to the results obtained from its use. Opinions included do not necessarily represent the views of US Capital Wealth Advisors, LLC. Please see USCWA’s ADV Part 2 for more information about USCWA.