August 2023 Global Markets Update | Savvy
Highlights
- US and Global markets took a breather from gains, with most markets mostly flat or marginally down, save for China which saw a larger decrease driven by concerns around a weakening economy.
- Oil prices continue to rise, driving positive energy sector returns for the month.
- Chinese markets reversed course from July, posting a significant loss.
US Markets
US markets were broadly lower during August, with the Russell 2000 dropping 5.17%, while the Nasdaq and S&P 500 lost 2.17% and 1.77% respectively. During August, Energy was the only sector to post a gain, notching a 1.65% gain, rallying for the second consecutive month on the prospect of continued high oil prices.
August sector performance saw Energy lead the way once again as US rig count continued to decline, albeit at a much slower pace1 and Saudi Arabia and Russia continue to have constrained production, with the recent announcement that both countries would continue their cuts through the end of the year2. These reductions and constraints have led to oil prices hitting three month highs, a tailwind for US Energy companies.
On the downside, Utilities struggled mightily during the month underperforming other S&P sectors by over 3% during the month. High yields among other assets are reducing the attractiveness of the sector, as investors can now find yield in myriad places, and need not rely on utilities as their yield source3.
August, despite the largely poor results, ended much better than it began with Technology posting a loss of over 5% in the first half of the month, only to rebound almost 5% in the second of August. Other sectors saw similar, but less accentuated reversals during the course of the month.
These results helped grow the discrepancies between sector winners and losers for the year. The gap between Technology (the top performing sector of the year) and Utilities now stands at 50% for the year.
August factor returns reflected broader sector performance. Last month’s sector winner, Energy, continued to outperform the broad market, and in turn we see that the Momentum factor lead factor returns for the month.
Global Markets
Much as Chinese markets led the rally last month, they, likewise, led the way down during August with a loss of 9.01%. Multiple sour economic announcements dragged the Chinese markets down, and put a cloud over global equity markets4.
Despite poor performance out of China, 2023 continues to be a positive year in global markets, with most markets still posting gains for the year. Investor concern over Chinese performance is palpable and outflows from the country have been accelerating during the course of August5.
Fixed Income Markets
The Federal Reserve maintained the status quo during August and market participants now expect that rates will not rise again in 2023 and, in fact, are likely to begin falling in 20246. Despite this subtle shift in Fed outlook, long term bonds continued to have a rough 2023, falling 3.14% during August, bringing year to date returns for the iShares 20+ year Treasury bond ETF into the red for the year.
Global bond yields did not change much for the month as much of the action in interest rates happened in the earlier parts of 2023. Expectations for future inflation have decreased dramatically, lessening the need for rapid rate hikes7.
1 https://rigcount.bakerhughes.com/
2 https://www.reuters.com/business/energy/saudi-arabia-extends-voluntary-oil-output-cut-1-mln-bpd-end-2023-2023-09-05/
3 https://www.wsj.com/finance/stocks/utility-stocks-cant-compete-in-a-world-awash-with-yield-1e6b5d2
4 https://www.nytimes.com/2023/08/16/business/china-hong-kong-stocks.html
5 https://www.scmp.com/business/china-business/article/3232162/foreign-investors-flee-chinas-stock-markets-record-pace-us900-billion-wipeout-near-term-return
6 https://www.reuters.com/markets/rates-bonds/traders-bet-fed-rate-hikes-are-over-cuts-start-2024-2023-08-10/
7 https://www.euromonitor.com/article/global-inflation-tracker-q3-2023-inflation-eases-while-global-divergence-accelerates
The information contained herein has been obtained from sources that are believed to be reliable. However Savvy does not independently verify the accuracy of this information. Past performance is not a guarantee of future results.
