Obviously, the bulls went to the beach last week, leaving the markets in the grip of the bears.
Wall Street turned in its worst week since late June amid extremely light trading, dropping on four of five days, as investors’ preoccupation with all that could go wrong come autumn dominated the action.
The Dow Jones Industrial Average dropped 232.85 points, or 1.5%, on the week, to close at 15,425.51, ending a six-week winning streak. The Standard & Poor’s 500 fell 18.25, ending at 1691.42. The Nasdaq lost 29.48 points, or 0.8%, finishing at 3660.11.
From concerns stoked by two Federal Reserve regional presidents suggesting that the nation’s central bank would move sooner than expected to rein in its longtime efforts to stimulate the economy, to worries about another round of possible budget cuts under the so-called sequester as fiscal year 2014 looms, to a dismal outlook for back-to-school retail sales, investors grew more uneasy with the stock market’s recent record-setting levels.
Adding to the fretfulness, August’s claim to fame among traders is that it historically has been the worst-performing month since 1987, with the weakest results occurring in its first nine trading days, according to Stock Trader’s Almanac editor-in-chief Jeffrey Hirsch. On average, the Dow has declined 1% in August, while the S&P 500 has slid 0.8%.
Despite last week’s weakness, the S&P 500 rose 0.34% in the first nine trading days of August, defying the historical seasonality and reflecting the strength underpinning the market. In the past 21 years, there have been 11 positive starts in August; all but three preceded full-month gains.
The broad market averages wobbled early in the week before rebounding slightly Thursday, getting a lift from trade data from China that suggested its economy could be stabilizing after two quarters of declining growth. The data sparked a rally in materials stocks, such as Cliff’s Natural Resources (ticker: CLF) and Newmont Mining (NEM), as China is the biggest consumer of raw materials.
How sustainable the demand from China is remains uncertain. Chinese exports jumped 2% in July from the previous month’s total, but are still well below their January 2013 peak.
By Friday, jitters set in again, and investors chose to overlook the fact that of the 446 companies in the S&P 500 that reported quarterly results, 68% exceeded expectations, slightly more than the 67% of the past four quarters, according to Thomson Reuters (Source: Barrons Online).