I miss that feeling: scanning my investments and knowing in advance that the numbers will be larger than they were the last time I looked. But, in an important way, the market’s summer setbacks have been long awaited, and they come as something of a relief.
While August has been a negative month for the stock market, there have been no major downturns this year. Through July, the S&P 500 rose for five consecutive months. Just seven Big Tech stocks — Apple, Nvidia, Microsoft, Amazon, Meta , Tesla and Alphabet — accounted for more than two-thirds of the S&P 500′s gains.
The stock market’s problems in August stem, at least partly, from shifts in the fixed-income markets: a sharp rise in short-term interest rates underway since the start of 2022, and a surge in long-term rates since June.Thanks to the rise in short-term rates, it’s possible to get a great return on cash. Money market funds provide yields well above 5%.
Longer-term interest rates — those for bonds and mortgages — have been rising, too. But these rates are complicated. They are set in the vast bond market. Higher interest rates might have been expected to slow down the economy by now, or throw it into recession. A waning of economic growth in China might also be expected to be a drag on the U.S. economy.