August 2024 Index Returns

It's September, we hope everyone had a wonderful summer!

In stocks (equities):

• There was a significant market selloff in early August that could have been caused by a number of factors including the Yen carry trade, belief the Fed may have waited too long to cut rates, skepticism about the growth of AI, among other possible causes. Global stock markets mostly rebounded throughout the rest of the month and only US Small Cap (growth, value, and core) saw negative returns during August.
  • We wanted to remind everyone of a separate post from last week that provided a few sample evergreen emails for advisors to use during periods of market volatility. It is important to note, these sample emails do not replace the communications East Bay is expecting to provide during extreme periods (examples include covid, banking crises, terrorist attacks, and other events that may have significant market impact).
  • After seeing small cap value outperform large cap growth by almost 14% in July, it was not necessarily a surprise to see a pullback in August as small cap value captured the lowest monthly return for stock indexes, falling -1.9%.
• Raise your hand if saw predictions of REITs obtaining the largest monthly return in August, with global REITs gaining 6.3% (US REITS posted a slightly higher 6.4%). Over the last 4 months, the highest returning indexes we follow have been US REITs (+21.3%) followed by global REITs (+18.9%).
• Keep your hand raised if you also saw predictions of non-US stocks (both large cap and small cap) outperforming their domestic counterparts for the month. This is the second consecutive month that non-US large cap stocks beat their US counterparts, thought they still trail for other time periods.
  • The Stoxx 600, which represents the stocks of 17 European countries, closed at an all-time high in late August.
• During a zoom call with one of our clients last week, we were asked how markets tend to move after Fed rate reductions. This article supports our conversation that markets don’t always move in the same direction after a Fed rate cut.
  • Lower interest rates make stocks more attractive to bonds, so stocks should be expected to increase in value. Plus, with lower interest rates, that means lower borrowing costs, which should also benefit stocks.
  • But, if the Fed is reducing rates because of a poor economy (the article refers to this as “desperation” rate cuts), then markets may decline.
  • Based on the current environment, one might expect markets to do well because the rate cut is more from positive news right now (i.e. falling inflation), however, as the article also notes, US stocks (in particular large cap growth) are already considered overvalued.
  • This is a great example of why we don’t try to time markets….

In bonds (fixed income):

• August was the the third consecutive month where all of the bond benchmarks we follow generated positive monthly returns.
• The 2 yr part of the US Treasury Curve fell the most in August, declining 38 bps overall while the 10 yr fell 18 bps. Rates fell across the entire US Treasury curve in anticipation of the Fed cutting interest rates during their upcoming September meeting.
  • 10+ yr Treasuries (+2.0%), outperformed 5-10 Yr Treasuries (+1.3%) and 1-5 Yr Treasuries (+1.0%).
  • Corporates slightly outperformed Treasuries in each of these curve nodes too.
• The 10 Yr Treasury ended August pretty much where it ended 2023 (3.91% vs. 3.88%). However, that doesn't show the movement that has taken place during the year as the 10 Yr Treasury went as high as 4.7% in April but has declined since.

As always, please let us know if you have any questions.