Monday, September 1, 2008

August 2008 Rewind - Weighing the Scales

This August, major U.S. equity indices showed gains across the board on choppy trade as the benefits of lower oil were weighed positively against a multitude of potential negatives. The S&P 500, Dow Jones Industrials and NASDAQ 100 cash indices posted results of +1.22%, +1.45% and +1.26%, respectively.

Crude oil continued its fall from last month well into the low one-hundreds. However, the retreat was not without its gyrations, which appear to have become part of the norm. Interestingly, the VIX (implied options volatility) also fell into the low twenties even in the face of Russia's bloody spat with Georgia, weak retail sales, unemployment at six-year highs, auction-rate security probes, record GSE losses, inflation levels not seen since the early 1980s, multiple hurricane watches, and renewed fears of a foreign contagion.

Instead, on balance the markets chose to pay attention to oil at three month lows, an on-hold Federal Reserve predicting lower inflation ahead, rumors of GSE bailouts, and a positive Gross Domestic Product surprise.

Style-Box performance showed strong relative strength in the Value and Small-Cap quadrants, while the Industrials and Consumers performed best among the Sectors on US Dollar strength and energy weakness. In fact, only Financials and Materials posted mild losses by month's end.

In retrospect, it was fairly impressive that the market was able to hold onto gains this month, even given oil, and on notably low volume at that. Perhaps it was just "tired" of going down, or perhaps it was signaling hopes of a future recovery. As we head into the high political season, only time (and greater volume) will tell.

Sentiment: Highly-Mixed
Volatility: Moderate (VIX 19-24)
Direction: Positive-Sideways

[Additional Month-End Analyses Posted on Market Rewind]

The Style-Box was calculated using the following PowerShares™ ETFs: Small-Growth (PWT), Small-Value (PWY), Mid-Growth (PWJ), Mid-Value (PWP), Large-Growth (PWB), and Large-Value (PWV). The Sector-Ribbon was calculated using the following Select Sector SPDR™ ETFs: Materials (XLB), Industrials (XLI), Energy (XLE), Staples (XLP), Discretionary (XLY), Financials (XLF), Technology (XLK), and Healthcare (XLV). The Standard & Poors 500, Dow Jones Industrial Average and NASDAQ 100 may be traded through ETF proxies, including the SPY or IVV, DIA and QQQQ, respectively.

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