August is often a quiet month for business and for the stock market, but this year was a different story.
At the beginning of the month, share prices in the US and around the world fell sharply. It was the start of a highly volatile month, which may have created concern for many investors.
But it wasn’t all bad news – just days after a global share sell-off began, the S&P 500 experienced its best trading day in two years.
So, what really happened and how might it have affected your investments? Read on to find out.
Global share prices fell sharply at the start of August as a result of recession fears
Sky News reports that US jobs data for July was significantly lower than anticipated when figures were released at the start of August. Fewer people than expected entered the workforce in July too. These two events caused the unemployment rate to rise to 4.3%, higher than the predicted increase to 4.1%.
Additionally, the Federal Reserve held interest rates steady rather than cutting them. The day after this decision, data pointed to a contraction in manufacturing output in July.
All these events occurred in close succession, and it led investors to fear an impending recession in the US. As a result, several of the biggest US indices fell in value on 1 August:
- The S&P 500 fell by 2.5%.
- The Dow Jones fell by 1.9%.
- The Nasdaq Composite fell by 3.3%.
The declines continued for several days. US Bank reported that, on 5 August, the S&P 500 had fallen 8.5% from its recent peak on 16 July, while the Nasdaq had fallen by 13% from its recent peak on 10 July.
US indices rebounded soon after the declines when further jobs data was released
Fortunately, the Guardian reports that several of the major US indices rebounded within days of the share sell-off. On 8 August, the:
- S&P 500 experienced its biggest single-day increase in two years, climbing 2.3%
- Dow Jones rose by 1.8%
- Nasdaq Composite rose 2.9%.
The report suggests that new jobs data that was released may have caused the rally. The figures showed that unemployment claims had fallen to 233,000 in the previous week, down from 250,000 that were filed the week before. This provided a reassuring indicator of the health of the jobs market, which may have boosted investor confidence.
Volatility can be nerve-wracking, but remember that this is part and parcel of investing in the stock market
The sharp falls that the US stock market experienced at the start of August didn’t last long, and the indices that fell were soon climbing once again. In fact, historical trends suggest that the best days in the market often occur shortly after the worst days.
CNBC reports that the 10 biggest single-day increases on the S&P 500 between 2013 and 2023 happened during recessions. Moreover, the best and worst trading days tended to occur in close succession. For example, the period between 9 and 18 March 2020 saw three of the top 30 trading days for the index, and five of its 30 worst days.
As you can see from this data, volatility can go both ways. A sharp fall doesn’t necessarily mean the fund or stock will continue to fall in value. In fact, it might be just days or hours away from a rebound – though it’s important to remember that past performance does not guarantee future performance.
The key takeaway for investors is that it’s impossible to predict how an index or stock might perform from one day to the next. Economic data and other external events can have a very swift and severe impact on stock markets. When this happens, it’s easy to panic about further losses; perhaps you’ll even start to consider whether you need to move your money out of the stock market altogether.
The most sensible action under these circumstances is to consult your financial planner for guidance. They can reassure you about how your portfolio is built to withstand short-term volatility and help you make the most sensible decisions for your wealth.
