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U.S. stocks closed mostly lower Monday, but with Wall Street recording its strongest August return in decades, as vaccine hopes kept investors pushing equities to fresh highs.
Shaking off moderate weakness elsewhere, the tech-heavy Nasdaq Composite ended higher, pushing further into record territory.
How did stock benchmarks perform?
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +1.05% shed 223.82 points, or 0.8%, to end at 28,430.05. The S&P 500 /zigman2/quotes/210599714/realtime SPX +1.06% fell 7.70 points, or 0.2%, ending at 3,500.31, after touching an intraday record of 3,514.77. The Nasdaq Composite /zigman2/quotes/210598365/realtime COMP +0.90% rose 79.82 points, 0.7%, to end at a record 11,775.46, after also setting a new intraday all-time high of 11,829.84.
Over the past five months, the Dow’s advanced 29.7%, its biggest 5-month percent gain since July 2009, while the S&P 500 added 35.4%, its best 5-month run since October 1938. The Nasdaq outperformed, advancing 52.9%, booking its strongest 5 months since March 2000, according to Dow Jones Market Data.
What drove the market?
The S&P 500 clinched its best August return since 1986 and the Dow its best return for that month since 1984, while the Nasdaq recorded its strongest August since 2000. Much of the strength has been attributed to hopes for vaccines and treatments for the COVID-19 pandemic that has debilitated economies across the globe. The S&P 500 and Nasdaq have continued to notch records as risk assets shrug off the economic damage wrought by the coronavirus.
“Over the course of the next eight weeks, we’re going to have a raft of announcements on a vaccine. If they are all positive, it’s going to trump everything,” said Quincy Krosby, chief market strategist at Prudential Financial, in an interview.
Adding to the optimism around potential coronavirus cures, the Food and Drug Administration’s commissioner, Stephen Hahn, said the U.S. could fast-track a trio of vaccines. The FDA boss, in a weekend interview with the Financial Times , insisted there are safe ways to make a vaccine available before the end of final stage trials—potentially by issuing an emergency authorization for use by certain groups, rather than achieving a blanket approval.
Still, this comes ahead of a seasonally weak month for stocks in September, which could be amplified by worries about a COVID-19 resurgence in the fall and winter, by the stalemate in Congress over additional pandemic aid and by turbulence fostered by the U.S. presidential election race between former Vice President Joe Biden and incumbent President Donald Trump.
“As some of the fiscal measures put in place begin to wear off, the need for additional fiscal stimulus only increases,” Charlie Ripley, senior investment strategist at Allianz Investment Management, wrote Monday. “At the end of the day, the speed of the recovery rests in the hands of politicians as they wrangle over the details in the next round of fiscal stimulus spending.”
What’s more, the closely tracked CBOE Volatility Index, or VIX /zigman2/quotes/210598281/delayed VIX -7.00% rose 14.5% Monday, and also has climbed in October ahead of each of the past seven presidential election years since 1992, according to Keith Lerner, chief market strategist at SunTrust Advisory Services, who notes that “some observers are now questioning whether a pullback at some point is even possible while the Federal Reserve’s policy remains so accommodative.
“Our response is an unequivocal yes,” Lerner wrote in a client note Monday.
Trading on Monday also followed last week’s important declaration by the Federal Reserve that it would use an average inflation target as a part of its monetary-policy. The shift implies the central bank would pursue lower rates for a longer period, even if the unemployment rate, which is historically associated with rising price pressures, started to fall substantially.
Fed Vice Chairman Richard Clarida on Monday defended the central bank’s shift to average inflation targeting. He said the link between inflation and the unemployment rate, known to economists as the Phillips Curve, began to lose its predictive power more than a decade ago.