Monthly Market Update:
Recap of August 2021
Wrapping up the month of August, the stock market continues its track going up with little bumps in the road, showing investors are remaining optimistic on the US economy.
To start let’s talk about the S&P 500. Before I go into details, I want to explain a bit more on the S&P 500 index for anyone who may always hear the term, but not understand what it is. The S&P is one of the major US stock indexes. When we discuss gains or losses in the index, that means that the stocks in the index combined provides the average gain or loss. The S&P 500 is often referenced within the financial industry because it provides a good representation of the overall US stock market due to the index containing 500 well established companies that are a part of many different industries.
Now that you understand a bit more on the S&P 500, let’s take a look at what it has done recently and historically. In recent news, the S&P continued to show positive gains. This makes seven consecutive months of gains for the index, which hasn’t been done since it wrapped up its 10-month consecutive gain streak in January of 2018. This is great to hear, though it does make us wonder, at what point do we see a dip. Historically, the S&P 500 averages three 5% or greater pullbacks every year, though we have not seen any since October 2020.
With all the positive gains for the stock market, there has to be a part of portfolios that have not fared as well, right? If you responded yes to that question, you are correct. Bonds have not fared as well, though they have been relatively flat since July 2020. That said, this does not mean we should be unloading bonds to stay solely in stocks. The strategy we use is to keep a balanced portfolio based on your risk, with the ultimate goal of lessening the rough road the stock market has historically provided. For the ultra-aggressive risk tolerance folks out there, yes we still remain solely in the stock market, but for those whose financial plan and comfort level do not need the risk, the bonds are necessary to provide balance. Think of the stock and bond market like a see-saw. When bonds aren’t doing well, the stock market is on generally going up, as it is now. Then, when the stocks aren’t doing well, bonds are in higher demand. With a balanced portfolio, it is like having two people close to the same size on that see-saw, smoothing out the ride and not getting bounced back and forth as much.
Moving into September and the remainder of the year, history says we are due for a pullback, though the stock market and the US governments willingness to step in, have provided a different look. That said, it is never worth timing the market and instead as I had mentioned previously, it is best to keep a portfolio that meets your needs from a financial planning perspective as well as a portfolio that aligns with your risk tolerance.
For the month of August, the S&P 500 finished +3.04%, Dow +1.5%, Nasdaq +4.08%, MSCI EAFE +1.76%, MSCI Emerging Markets +2.62 % and Barclays US Aggregate Bond Index -.19%
Please remain safe and reach out if you have any questions.