As the market continues to gain momentum, it is important to understand that the macroeconomic environment can cause volatility. The recent events in Ukraine and Russia have contributed to a sense of risk-off sentiment. Furthermore, a recent report from Valeant management has suggested that the company is targeting low-priced drugs to generate profit. These developments have also caused equities to lose their momentum. Despite the risk-off sentiment in August, momentum can continue to be affected by a variety of factors.
High-flying stocks suffered the most in August as Chinese growth and demand were undermined. The energy and communications services sectors remained among the best performers. Conversely, energy companies underperformed the benchmark. Nevertheless, European equities had a better month than the U.S. and Asian markets. The positive Q2 earnings season and the continued economic recovery helped Europe’s stock market to grow in August. While the Delta variant of Covid-19 continues to spread, it is worth noting that most large eurozone countries have vaccinated their citizens against the virus.
The most popular cyclical stocks continued to perform well. These stocks tend to perform better during periods of economic recovery. Meanwhile, the energy sector was the worst performing among the S&P 500. Crude producers and refineries have been forced to shut down following the hurricane. Another area where commercial airline stocks fell the most is the airline industry. The White House has announced it is considering executive action in an effort to avoid massive layoffs in the airline industry.
