August Economic Update
Last month, the major stock market indices moved higher to end the month with respectable gains, overcoming fears of higher inflation and increasing rates of COVID-19 cases. July was a choppy month as the markets digested a jump in consumer prices and the continued spread of the Delta variant.
Stocks took a breather in the final week, despite the Federal Reserve's renewed assurances that its near-zero interest rate policy would remain in place. The Dow Jones Industrial Average picked up 1.25%, the S&P 500 Index gained 2.27%, and the Nasdaq lagged climbing 1.16%. (1,2)
Earnings season was in full swing last month as nearly half of S&P 500 companies had reported earnings, with 91 percent of those companies beating Wall Street’s estimates. Companies also reported strong sales, topping estimates by nearly 24%. (3)
The rise in global COVID-19 cases last month unsettled investors, who have raised concerns about what this new viral spread could mean for economic growth. Some experts expect the recent surge to peak in August, while others see a peak in mid-September to early October. As of the date of this newsletter, the seven-day average for new COVID-19 infections has reached 100,000 cases per day. The uptick in cases will likely not mirror the experience seen in 2020. However, some investors may remain watchful as local, state, and federal entities weigh further restrictions. (4,5)
Federal Reserve Pivot
The Federal Reserve reaffirmed that its monthly bond purchase program would continue until the Fed sees substantial progress in its inflation and employment goals. Since the first wave of COVID infections began in early 2020, the Federal Reserve has supported the bond market by purchasing corporate bonds and mortgage-backed securities.
“Our asset purchases have been a critical tool,” Fed Chair Jerome Powell stated. “They helped preserve financial stability and market functioning early in the pandemic and, since then, have helped foster accommodative financial conditions to support the economy.” (6)