S&P 500 Witnesses Its Best August In 34 Years – What Comes Next?

The U.S. stock market experienced one of the shortest bear markets this year, which came after forming a trough in March. Ever since then, U.S. stocks have been in an upward trend. The S&P 500 index is up 8.34% year-to-date (YTD), the Nasdaq NDAQ stock index has scored gains of 38.68% YTD, and the Dow Jones Industrial Average is down by just 0.38% YTD. 

It was the U.S. stock market’s performance in August that produced flashing headlines. Investors are now wondering what will come next for the stock market during this pandemic. 

S&P 500 Scores Longest Bull Run Since 2018 

The S&P 500 recorded its best August in 34 years and sealed the month with a gain of 7%. The stock index began the year on a negative note, and it recorded three continuous months of losses, with March being the worst when the S&P 500 stock index wiped all the gains for the last year.  

The coronavirus triggered the selloff, which halted the global economy, while lockdowns started to occur worldwide. Since then, the S&P 500 not only recovered all its losses but also posted new record highs. If one looks at the monthly performance of the S&P 500, the index has recorded five back-to-back monthly gains, which is the longest winning run since September 2018. 

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Reasons for the Stock Market Rally  

The reasons for this coronavirus stock market rally have been chiefly linked to the recovery in the U.S. economic numbers and falling coronavirus cases. Of course, the support from fiscal and monetary policies have also played their part. The Fed lowered the interest rate, which is currently sitting at a record low, and it also started its quantitative easing program once again. This purchase of assets expanded the Fed’s balance sheet, and many dub the current U.S. stock market a bubble.  

Where do we go from here? 

Higher Stock Volume  

Now that the summer months are over, traders will return from their holidays, raising the stock market volume, which is normal. But as traders return to work with fresh minds, they are likely to closely assess the markets and begin comparing the stock market’s performance to the actual economic recovery and what triggered the selloff. 

Flu Season and Coronavirus  

There is no doubt that the flu season will begin soon, which is likely to obstruct the U.S. economic recovery because the coronavirus situation may worsen. 

  

Economic Numbers and Hope  

The hope is that soon there will be a vaccine to combat coronavirus and soothe concerns about the economic recovery. We have surprisingly strong economic activity coming out of the U.S., such as economic numbers from the U.S. ISM manufacturing, U.S. Non-ISM manufacturing, durable goods orders, and many others. With a race for a potential vaccine in the pipeline, the economic activity could shift to a higher gear if a vaccine is launched. 

Dow Jones and S&P 500  

We could now see more upside for the S&P stocks and more significant recovery across all S&P 500 sectors. The Dow Jones index, which has been lagging as it hasn’t dug itself out of its yearly losses, may also score new record highs.  

  

The Bottom Line  

Despite the S&P 500’s best August since 1984, the fact remains that when these institutional traders return to their day jobs, they will look at everything very closely. They are going to pay attention to why the volatility index, something that is considered a hedge, is still up by a whopping 91% YTD. Something needs to give, and in the coming months, we will get an answer to this.

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