August’s “dog days of summer” brought a low volume, sideways trade to markets. The S&P 500 index finished higher by +0.3% for its tenth consecutive month of post-election gains, now up +11.7% for the year. A brighter spot for stocks was Emerging Markets, up +2.4% for the month. Bonds slightly outperformed, with the Barclay’s Aggregate Bond index higher by +0.9% for the month, and +3.7% for the year. While Commodities were also up slightly by +0.4%, they remain the sole major asset class down on the year by some -4.7%.

In spite of the mildly positive finish for stocks, August was not without its drama. On top of the rising existential threat posed by North Korea’s nuclear ambitions, record breaking Hurricane Harvey slammed into southern Texas, causing significant deaths and an estimated $180 million in damage to Houston. These events precipitated short-lived spikes in volatility, which ultimately settled back down by month-end once again to near record lows. However, threat of storm, geopolitical and literal, remain with us here in early September. This weekend, hurricanes Irma, Matthew and Jose continue to bear down on Florida and the greater South Atlantic region, and Chairman Kim has promised yet another missile test. Farther afield, the Catalan region of Spain is pursuing a separatist vote on October 1st.

On the economic front, the jobs report remained robust, albeit somewhat below expectation at +156,000 non-farm additions, and second quarter Gross Domestic Product (GDP) was revised upward from +2.7% to +3.0%, its quickest pace in over two years. Just this week, the federal government extended its debt ceiling vote for three months through mid-December, buying time against the possibility of a government shut down and the economic turmoil that would cause. Several ratings agencies have made it clear that failure to pass a budget bill will result in another US sovereign debt downgrade, which last caused a major market disruption in 2011.

Much has been written about the volatility historically associated with September. A small consolation for doomsayers maybe that large corrections have rarely occurred with the economy in as good a condition as it is, and on the heels of annual gains leading into the fall, as we face currently. That said, markets are certainly overdue a pause, and it does appear that a number of potential market risks are aligning, and we are therefore monitoring markets especially closely as we head into the fall.

Index Source: Commodity Systems, Inc.