The U.S. stock market recorded its worst monthly performance this year as the prolonged outlook for rising interest rates coincided with a crisis in the Chinese economy.
According to financial information firm FactSet on the 22nd (local time), all 11 sectors within the S&P 500 index showed a downward trend this month. The average decline based on the closing price that day reached 4.4%.
By sector, utility-related stocks fell more than 6%, showing the largest drop, while technology, materials, and real estate sectors experienced declines close to 6%. Additionally, financials, industrials, consumer discretionary, and communication sectors also saw drops in the 4-5% range. This is the first time since December last year that all sectors within the S&P 500 index have declined.
The Nasdaq index, which has led the U.S. stock market rally this year, fell even more sharply by 5.9%. The Nasdaq 100 index, composed of major U.S. tech stocks, dropped 3.6% over four days last week (15th-18th), marking the largest four-day decline since February.
The decline in the U.S. stock market in August was caused by multiple negative factors overlapping. The hawkish Federal Open Market Committee (FOMC) minutes, downgrades in U.S. bank credit ratings, and worsening economic instability in China weighed heavily on the market.
The U.S. Federal Reserve (Fed) noted in the July FOMC minutes that although recent inflation has shown signs of easing, it remains "unacceptably" high, and more evidence is needed to be confident about reaching the 2% target. The Fed also took a generally hawkish stance on future inflation and economic outlooks.
Fiona Cincotta, senior market analyst at London-based City Index, said, "We had an optimistic July, but as the perception that the Fed’s prolonged monetary tightening will become a reality spreads, the outlook for the stock market is darkening." Traditionally, September is the weakest month for the stock market throughout the year. Because of this, there are concerns in the market that a 'bottom test' with deeper declines in the stock market will continue in September.
The upcoming Jackson Hole meeting this week and the September FOMC are expected to be key variables influencing the stock market’s direction. The economic symposium ‘Jackson Hole Meeting,’ held from the 24th to 26th, will be attended by Fed Chair Jerome Powell, as well as central bank governors from the European Central Bank (ECB), Bank of England (BOE), Bank of Japan (BOJ), and leading economic scholars. The meeting, themed "Structural Changes in the Global Economy," is expected to include discussions on the end of the low inflation era and increasing pressure on long-term interest rates. Chair Powell will deliver an economic outlook speech on the second day, the 25th.
The market is paying close attention to whether Chair Powell will provide hints on inflation assessment and the possibility of further tightening at this event ahead of the September FOMC. TD Securities stated, "While the likelihood of Fed Chair Powell indicating the direction of interest rates is low, it is expected that he will leave open the possibility of prolonged rate hikes to reduce inflation."
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