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S&P 500 falls slightly Tuesday, but notches 7th-straight winning month in August

S&P 500 falls slightly Tuesday, but notches 7th-straight winning month in August

31 Aug 2021

Stocks edged lower on Tuesday as the S&P 500 wrapped up its seventh-straight month of gains at just below all-time highs.

The Dow Jones Industrial Average slipped 37 points, or about 0.1%. The S&P 500 lost 0.1%, while the Nasdaq Composite was down 0.1%.

Tuesday marks the last trading day of August, and major averages are poised to post solid gains for the period. The S&P 500 is up 3% this month, while the tech-heavy Nasdaq Composite has climbed 4%, on pace to post its third winning month in a row. The blue-chip Dow is up a more modest 1.3%.

For the S&P 500, it will be its longest winning streak since a 10-month run ending in December 2017. This is also the benchmark’s 9th positive month in the last 10. The index notched its 53rd record close of 2021 on Monday.

“We believe that the momentum toward reopening and recovery is intact and that there is further upside to equities,” wrote Mark Haefele, chief investment officer of global wealth management at UBS, in a note. “The S&P 500 rally is underpinned by robust earnings growth…With the economic recovery broadening, we expect cyclical sectors, including energy and financials, to take the lead.”

Haefele sees the S&P 500 rising another 1.6% from here to 4,600 by year-end and then running to 5,000 by the end of 2022.

The strong run for the S&P 500 has come even as the delta variant of Covid-19 has raised concerns about the path for the economic recovery. On Tuesday, Google-parent Alphabet pushed back its voluntary return to office to January from mid-October.

“August is proving to be a month not too dissimilar to every other month this year except January: stocks gained ground. And the ~3% gain is actually only about average for a market that has gained 20% now ytd. But the move higher in stocks this past month came amidst some interesting trends that traditionally have not provided a good backdrop for risk assets,” Chris Hussey from Goldman Sachs said in a note to clients.

The S&P 500 was split roughly even between rising and falling stocks on Tuesday. Apparel company Nike was one of the biggest losers in the Dow, falling nearly 2%. Materials stocks including Nucor and chemic company Dow also struggled.

Zoom shares fell about 16% on Tuesday after the video-conferencing software company showed slowing revenue growth in the second quarter, weighting on the Nasdaq. Shares of Apple also declined, but Amazon’s stock rose 1% to help offset those losses for the broader markets.

Shares of Wells Fargo fell more than 5% in afternoon trading after Bloomberg News reported that the bank could face further sanctions as regulators are upset about the pace of progress in compensating victims of Wells Fargo’s previous scandals. Wells Fargo declined to comment to CNBC.

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The S&P 500’s 20% gain this year has come without even a 5% pullback this year. The broad equity benchmark has more than doubled since its pandemic low in March 2020.

Stellar corporate earnings have provided valuation support and the basis for stock prices to march higher. With the second-quarter reporting season winding down, the S&P 500 is on track to post an earnings growth rate of 95.4%, which would be the largest increase since the fourth quarter of 2009.

“We believe we’re still in the early innings of the cycle and that strong economic and earnings growth and relatively low rates through 2022 should support higher equity prices and sustain the bull market,” Wells Fargo strategists said in a note.

Investors are awaiting a key jobs report on Friday ahead of the Labor Day weekend. Economists polled by Dow Jones expect 750,000 jobs were created in August and the unemployment rate fell to 5.2%.

On Tuesday, the S&P CoreLogic Case-Shiller national home price index showed that prices were up 18.6% year over year in June. An August consumer confidence report from the Conference Board showed a larger-than-expected decline.

Overseas, China’s non-manufacturing PMI for August came in at 47.5, signaling a contraction for the first time since early 2020. Meanwhile, euro zone inflation hit a 10-year high.

On the political front, the Pentagon said the U.S. has finished its evacuation efforts from Kabul’s airport, effectively ending America’s longest war.