Thrivent Asset Management Contributors to this report: Mark Simenstad, CFA, Chief Investment Strategist; Steve Lowe, CFA, Vice President, Mutual Funds-Fixed Income; John Groton, Jr., CFA, Director of Administration and Materials & Energy Research; Matthew Finn, CFA, Head of Equity Mutual Funds; and Jeff Branstad, CFA, Senior Investment Product Manager

The stock market set a new record high in August, as the S&P 500® finished the month at 3,500.31, representing a gain of more than 20% over the past 12 months and 8.34% since the start of the year.

The surge in stocks has come against a backdrop of high unemployment, shrinking gross domestic product (GDP), and the closing of thousands of small businesses due to the COVID-19 pandemic.

What is behind the market’s surprising rise? Much of the increase is attributed to the unprecedented action of Congress and the Federal Reserve (Fed), which have injected trillions of dollars into the economy to provide financial assistance for struggling businesses and laid-off workers. 

But there is also some muscle behind the numbers. Many technology-related firms have reported strong growth, as well as certain retailers – both online and brick-and-mortar – such as Amazon, Walmart, Target and Home Depot. (See Where is the “Shock and Awe” as Market Surges?)

Drilling Down

U.S. stocks continue to rise

The S&P 500 index was up 7.01% in August– from 3,271.12 at the July close to 3,500.31 at the end of August. The total return of the S&P 500 index (including dividends) was 7.19% for the month and 9.74% year-to-date.  (The S&P 500 is a market-cap-weighted index that represents the average performance of a group of 500 large capitalization stocks.)

The NASDAQ Index also had a strong July, up 9.59% for the month. It was up 31.24% year-to-date. (The NASDAQ – National Association of Securities Dealers Automated Quotations – is an electronic stock exchange with more than 3,300 company listings.)

Retail sales continue recovery

Retail sales continued to recover in July from a steep drop earlier in the year when many businesses across the U.S. were closed as part of the pandemic lockdown. Retail sales for July were up 1.2% from the previous month, and 2.7% above July 2019, according to the Advance Monthly Sales report from the Department of Commerce issued August 14.

Automobile sales cooled off in July after rebounding in June with an 8.2% increase from the previous month. Auto sales were down 1.2% for month, but still up 6.1% from July 2019. Electronics and appliance stores also continued a strong recovery, up 22.9% from the previous month, but still down 2.8% from the same period a year earlier. With many bars and restaurants reopening, food services and drinking places were up 5.0% from the previous month, but still down 18.9% from a year earlier. 

Sales for non-store retailers (primarily online), which experienced strong growth early in the pandemic, were up just 0.7% for the month, but still up 24.7% from the same period a year earlier.

Unemployment remains high 

Unemployment remains at a high level, with many businesses still closed as a result of the pandemic. While many people have returned to work, American workers continue to file unemployment claims at a high rate. During the four-week period through August 22, the Department of Labor reported more than one million new unemployment claims each week. 

Despite the new claims, the advance seasonally adjusted insured unemployment rate declined 0.2% for the week ending August 15, bringing the unemployment rate down to 9.9%.

Most sectors gain in August

All but two of the 11 sectors of the S&P 500 index made gains in August. The Utilities sector was down 2.65% and the Energy sector was down 1.02%. Information Technology led all sectors, up 12.01% for the month. 

The chart below shows the results of the 11 sectors for the past month and year-to-date:

Treasury yields move up

After dropping to its lowest level since the government began offering bonds in 1790, the yield on 10-year U.S. Treasuries moved up in August from 0.54% at the July close to 0.70% at the end of August. The low yields are attributed to two significant cuts in the Fed funds rate by the Federal Reserve and to an increase in bond demand as investors sought a safe haven amidst this uncertain economic period.

Oil prices continue to recover

Oil prices have continued to rebound off of historic lows, as motorists have begun to return to the road – although air travel is still significantly below normal rates. 

West Texas Intermediate, a grade of crude oil used as a benchmark in oil pricing, was up 5.81% in August, from $40.27 at the end of July to $42.61 at the close of August.

International equities continue recovery

International stocks have continued to recover along with U.S. stocks, although the recovery has not been as robust. The MSCI EAFE Index, which tracks developed-economy stocks in Europe, Asia and Australia, was up 4.93% in July, although it is still down 6.23% year-to-date.

Media contact: Samantha Mehrotra, 612-844-4197; samantha.mehrotra@thrivent.com