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August Economic Update

Market Summary

Stocks continued their rally in July as further development of a COVID-19 vaccine and better-than-expected corporate financial reports encouraged investors. Despite multiple states reporting increases in infections, multiple regional Federal Reserve presidents warning of a bumpy economic recovery, and Gross Domestic Product (GDP) contracting by a record 32.9 percent in the second quarter, stocks continued their climb with mega-cap technology companies such as Apple and Amazon outperforming the broader equity sectors.

The S&P 500 gained 5.5 percent, while the tech-heavy Nasdaq Composite increased 6.8 percent. The Dow Industrial Average, which has lagged much of the year, rose 2.4 percent. (1,2)

News Developments

As expected, the Federal Reserve left its benchmark interest rate unchanged at its two-day meeting, which ended July 29. The Fed also reiterated its commitment to bond purchases and the lending and liquidity programs it currently has in place. Fed Chairman Jerome Powell stressed the importance of Congress passing more economic stimulus packages - similar to the $1,200 checks received last spring - in order to keep the economy functioning. (3),

There has been increasing scrutiny towards the mega-cap technology companies Apple, Amazon, Facebook, Google, Microsoft, and Netflix. These five stocks have outperformed the rest of the stock market significantly, and Congress has been investigating several of these companies for anti-trust violations and growing concerns of monopolistic business practices. Six of mega-cap stocks represent more than 40% of the Nasdaq market capitalization, and five of these stocks account for 22% of the S&P 500 index’s market capitalization. Since March, investors have flocked to these stocks as they appear to have solid financial performance in the midst of an economy coping with COVID-19. (4)

What’s Ahead for August?

With the S&P 500 nearing a full retracement from the drop earlier this year and with earnings season now behind us for another quarter, what might next month have in store?