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“We will keep at it until we are confident the job is done.”– Jerome Powell, 8/26/22

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The word of the week has been vibes. This morning, positive vibes steer the market as S&P 500 futures are up over 50 bps and the Nasdaq is poised to open 1% higher.  There hasn’t been much in the way of headlines to support the rally, and while earnings results after the bell yesterday were positive, we can’t remember a time when stocks like Intuit (INTU), Workday (WDAY), Cava (CAVA), and Ross Stores (ROST) were considered market movers.  For now, bulls will take the gains, especially after yesterday’s pullback which was also based on not much else besides some negative vibes heading into today’s Jackson Hole speech from Fed Chair Powell.  That speech comes at 10 AM Eastern, and if Powell does anything less than lay the groundwork for a rate cut at the September meeting, look out.

Although August has historically been a weak month, it hasn’t lived up to its reputation as the S&P 500 has a MTD gain of 0.88%.  With August and September traditionally being such weak months, you would think that the last week of August would be especially negative, but historically, that has not been the case. The chart below shows the S&P 500’s performance during the last week of August dating back to 1953 (when the five-day trading week in its current form went into effect).

Overall, the S&P 500’s median performance to close out August has been a gain of 0.53% with positive returns 58% of the time. In the last ten years, performance has been even stronger with a median gain of 1.14%, or more than double the long-term average. Within those last ten years, there have been some big swings. In 2015, the S&P 500 had its best final week to August with a gain of 4.17%, although that followed what had been a MTD decline of 10.0%. At the other extreme, in 2022, the S&P 500 had its second worst-ever final week to August when it fell 4.49% after Powell was direct and to the point at Jackson Hole saying that the fed was “committed” to doing the job of bringing inflation down and that higher interest rates would cause “pain”.  Bulls still have the scars from that one, but as he said in that speech, “Restoring price stability will take some time”. In the two years since that speech, has Powell finally seen enough?

As mentioned above, the S&P 500 is up 0.88% so far this month, but historically speaking, there hasn’t been much of a relationship between how the market performs leading up to the last week of August and how it does in the final week. The only time there has been any connection is after a rough start to the month. As shown in the chart below, in the six years when the S&P 500 was down more than 6% MTD heading into the final week of the month, it was up in the final week all six times. Ironically, in the last 71 years, there have only been four other years where the S&P 500 has been up between 0% and 1% heading into the last week of August. Just another example of how “boring” August has been so far. Right?

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