U.S. Stocks Confound Bears Seeing Summer Drop
The August rally in stocks confounded bears who predicted the Standard & Poor’s 500 Index would repeat last year’s summer slump.
As the CHART OF THE DAY illustrates, the S&P 500 tracked its 2011 performance in the first seven months of the year. The relationship broke down at the end of July as European Central Bank President Mario Draghi pledged to do whatever it takes to preserve the euro and speculation grew that Federal Reserve Chairman Ben S. Bernanke will herald further bond purchases at his speech in Jackson Hole, Wyoming, today.
Albert Edwards, a London-based strategist at Societe Generale SA, used a version of this chart in a July 25 report that asked “is the S&P replaying 2011?” and said the U.S. economy looks to have returned to recession. The same day, Bob Janjuah, global head of tactical asset allocation at Nomura Holdings Inc., predicted a “major risk-off phase” in the coming four months with global stocks falling by as much as 20 percent to 25 percent.
“If it hadn’t been for Draghi’s ‘We will do everything’ remark, the S&P 500 would’ve followed the 2011 script,” said Manish Singh, the London-based head of investment at Crossbridge Capital, which has more than $2 billion under management. “The ECB has played the main role in making this year different.”
The S&P 500 sank 5.7 percent in August 2011, and a further 7.2 percent the following month, data compiled by Bloomberg show. The benchmark gauge for U.S. equities advanced 2.3 percent this month though the Aug. 29 close.
“We expected returns to be quite decent in August and still do going forward,” said Daniel McCormack, a strategist at Macquarie Securities Ltd. in London. “If you look at the background coming into the month, valuations were extreme and when that is the case you don’t need much in the way of good news to get markets moving.”
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