Despite a small uptick as the month ended, investors reacted to a series of disheartening economic reports by pushing stocks steadily lower in August. Broad market averages posted declines for four consecutive weeks. However, a pledge by Federal Reserve Board Chairman Ben Bernanke that the central bank would take bolder steps to stimulate the economy if business conditions continued to worsen provided a welcome piece of cheer.
Among the news troubling investors was a revision in the Commerce Department’s estimate of second-quarter gross domestic product (GDP) – to a 1.6% (annualized) rate from the previous estimate of 2.4%. Unemployment remained stubbornly high at 9.5%, and the housing sector also was a sore spot, with sales of both new and existing homes reaching record lows. Altogether, the widening realization that economic growth has slowed sent stocks broadly lower (see figures below).
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As always, there were also positive signs. Consumer confidence, as measured by the Conference Board, rose to 53.5 from July’s reading of 51, outpacing the consensus forecast of economists. Consumers also increased their spending slightly (0.4%) from July’s levels. Both reports indicate that consumer spending, which accounts for some 70% of U.S. economic activity, is continuing to hold up.
August was also punctuated by a number of takeover announcements, as companies in a variety of industries deployed their stockpiles of cash in efforts to gain market share and diversify operations. Takeover activity can sometimes be interpreted as a sign that corporate CEOs see bargains in the market.
Although August was a difficult month for equities, there are always opportunities in the financial markets. If you’d like to discuss repositioning your portfolio as we head into the final months of the year, I’d be happy to review your current holdings with you. Just give me a call!
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