Stocks Trade Lower in August as Interest Rates Rise
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Monthly Market Summary
- The S&P 500 Index declined -1.6% in August but outperformed the Russell 2000 Index’s -5.1% decline. Energy was the only S&P 500 sector to trade higher, while Utilities and Consumer Staples led the remaining nine sectors lower.
- Corporate investment-grade bonds produced a -1.2% total return in August, underperforming corporate high-yield bonds’ +0.2%total return.
- International stocks underperformed U.S. stocks in August as the U.S. dollar strengthened. The MSCI EAFE Index of developed market stocks declined -3.9%, outperforming the MSCI Emerging Market Index’s -6.6% return.
Stocks Trade Lower in Early August but Rebound Later in the Month
The S&P 500 traded lower during the first half of August, at one point erasing all of July’s 3.3% gain. The sell-off occurred as investors worried about the potential for further interest rate hikes and increased bond issuance by the Treasury to fund government spending. Interest rates rose to levels last seen in 2007, with the 10-year Treasury yield climbing to 4.35%. This sudden rise in interest rates caught the market by surprise and weighed on stock market valuations. However, interest rates reversed a portion of their rise later in the month, with the 10-year Treasury retreating to 4.09%. The S&P 500 found its footing as yields declined and recovered to finish the month with a -1.6% decline, its first monthly loss since February of this year.