“The big money is not in the buying and the selling, but in the waiting.”Charlie Munger
August answered July. The selling that defined midsummer gave way to a month of broad gains, led by the very technology names that took the worst of the July damage. The S&P 500 rose 2.62 percent and the Nasdaq 3.93 percent, the first monthly gains for both since May, while the Dow added 1.34 percent for its fifth consecutive monthly advance and its fifteenth positive month of the past sixteen. Both the S&P 500 and the Dow touched all time highs along the way. None of it came quietly. Tensions in the Middle East kept trading choppy, and inflation worries pushed Treasury yields to multi year highs, but the buyers won the month, and for reasons we think are sound rather than speculative. Below, what actually moved, what it means, and why the record highs themselves are not a reason for caution.
From the Desk.
Energy edged out every sector at 6.48 percent, but technology, just behind at 6.19 percent, was the month’s real story, and the story behind that leadership matters more than the number. Nvidia’s earnings answered the question July spent asking. Where midsummer’s selloff was built on doubts about the economics of AI spending, the company reported a blowout quarter and guided to 70 percent revenue growth for fiscal 2028, far above the 45 percent Wall Street had penciled in, adding that the figure would be 100 percent were it not for supply constraints. The stock climbed 9.8 percent for the month, Microsoft gained 9.2 percent, and the semiconductor index stabilized after July’s slump. And Micron, which sat at the center of that rout, advanced more than 16 percent, yet still trades today as the third cheapest stock in the entire S&P 500, a fact we find equal parts amusing and telling. It fits a point Ed Yardeni’s research made this month: forward earnings have risen roughly twice as fast as prices this year, which leaves the market cheaper on forward earnings than it was in January, even at record levels. These highs are being earned, not stretched.
The Federal Reserve’s month centered on Jackson Hole, where Chair Warsh spoke in the closing days of August and was received as hawkish. He is worried about inflation, calling the recent numbers concerning and arguing that softer summer readings may not reflect meaningful improvement in the underlying trends. We think the hawkish framing is overblown, and that markets fixated on the tone while missing the substance. The line that mattered was his refusal to offer forward guidance at all, describing himself as committed to a discipline, not a decision. That is the same approach we wrote about last month: a chair who wants markets, not the Fed, setting the path of rates. The bond market spent the month testing that proposition. The 30 year yield pushed above 5.30 percent, its highest level since before the financial crisis, before a surprise Treasury announcement expanding buybacks of longer dated debt eased the long end into month end, while short yields rose on growing expectations of a September hike. The inflation worry showed up elsewhere too: gold rose 9.1 percent, silver 15.9 percent, and Bitcoin futures had their best month since 2024. History offers a useful footnote here. Work we follow from Fidelity’s quantitative strategy desk notes that small Fed hikes have often coincided with economic expansion rather than ended it, so even the hawkish scenario is less of a threat than it is made out to be.
The month’s other encouraging development was breadth. Strength ran well past the megacaps: more S&P names rose than fell, the equal weighted index gained 2.0 percent and barely trailed the cap weighted one, and materials finished up better than 5.8 percent. Health care deserves its own line, up 4.78 percent with biotechnology on a genuine tear, capped by Moderna rising more than 150 percent in a single month on progress toward a cancer vaccine developed in partnership with Merck. The small cap Russell 2000 rose 0.86 percent, trailing for the month, though small caps still lead large for the year, something a quiet summer has not changed. We wrote last month that capital was finding a different address within equities rather than leaving them, and August supported the point: leadership rotated back toward technology without the rest of the tape giving way.
Iran was quieter than the headlines suggested for most of the month, with more energy moving through the Strait of Hormuz and occasional hints of diplomatic progress, before the calm broke late: the United States struck sites tied to the strait while Iran hit targets in Jordan and the UAE. Even so, WTI crude rose just 1.3 percent for the month. Our view from last month stands. The pattern has been escalation followed by de-escalation rather than a genuine supply shock, and oil barely moving through a month like this one is the market agreeing. Until that changes, we are watching rather than repositioning.
On the Radar.
Zoom out and September asks for the same patience we counseled a month ago. It is historically the slowest stretch of the year for equities, and in a midterm year we continue to expect chop into early October before conditions typically improve. The midterm pattern itself is worth a closer look, though, because the back half of it favors the patient. Across the 24 midterm election years since 1928, the S&P 500 has averaged a year to date decline of 0.5 percent through August, against an average gain of 8.2 percent in the 74 other years. From September through December, the relationship flips: midterm years have averaged a 4.2 percent gain over the final four months, against 1.2 percent in all other years. This year has already outrun the weak first act of that script, and the strong final act is the part still ahead. As for whether record highs are themselves a reason to wait, history is unusually clear there too, and Fidelity’s research recently tallied it: since 1920, buying the S&P 500 at an all time high has produced slightly better one, three, and five year forward returns than buying on an ordinary day, on the order of 9.9 percent over one year, 36 percent over three, and 63 percent over five. Highs beget highs more often than they mark tops. We remain bullish, and would still treat seasonal weakness as an opportunity rather than a warning.
Between now and the next issue, the September Federal Reserve meeting sits at the top of the list. Futures still lean toward a hike, and our expectation is a hold, not a hike, whatever the tone of the dissents. The August jobs report arrives this week and matters more than usual, since July payrolls posted their first monthly decline since February even as the unemployment rate ticked lower, with manufacturing and services data close behind. The Group of 20 finance ministers are meeting in Asheville, practically up the road from us, and anything of substance out of that gathering lands close to home. Beyond that, we are watching whether the bond market settles now that the Treasury has shown its toolbox, whether technology’s renewed leadership holds, and, as ever, Iran.
On a personal note, the backyard ultra I mentioned last month ran this past weekend: a four mile loop every hour, on the hour, for as long as I could keep answering the bell. I simply went until I could not go any more, which turned out to be over 14 hours on my feet and 62 miles on the watch. The recovery window is short. This coming weekend a friend and I are headed to Bald Head Island to run a mock Ironman 70.3, the half distance staged entirely on our own, which is one way to spend Labor Day. From there, the Cape Fear Marathon arrives in October and the Panama City Ironman in November, with training at its peak.
Yours in confidence,
John Bennett Woodard IIIInvestment Advisor Representative
Always Buy Quality and Diversify®