5 Best Performing Stocks Of August

Markets declined marginally over the month, following rising prospects of an interest rate hike. The Fed Chair provided indications that the case for a rate hike had grown stronger recently, primarily due to substantial job additions. Additionally, oil prices underwent a rollercoaster ride after ultimately ending the month with gains. However, expectations increased that a production cap agreement between major oil producing countries was in the offing.

August’s Performance

For the month the S&P 500 and the Dow declined 0.1% and 0.2%, respectively. However, the tech-laden Nasdaq managed to settle in the green, gaining 1%. Investors continued to grapple with the timing of a rate hike, with Fed Chairwoman Janet Yellen saying that the case for hiking federal funds rate has gained in strength in “recent months”, mostly due to a job market rebound following a slump in hiring in spring.

A potential interest rate hike this year dragged the broader markets down in August since such low rates had boosted the markets for a considerable period of time. Expectations that the Fed will move closer to a rate hike call helped the dollar hit multi-week highs. The dollar’s strength along with crude oversupply also weighed on oil prices.

The oil market has already gone through a topsy-turvy ride in August. While the crude oil entered bear market territory during the beginning of August on subdued demand, it did stampede into a bull market territory during the third week of last month, thanks to increase in expectations that top oil producing countries like Russia and Saudi Arabia will cap output.

Leading Retailers Post Encouraging Results

The bulk of the Q2 earnings season is now behind us, with results from 483 S&P 500 members already out. Total earnings for these companies are down -3.2% on +0.1% higher revenues relative to the same period last year.

The focus lately has been on the Retail sector, with a number of leading operators like Wal-Mart (NYSE:WMT) , Macy’s (NYSE:M) , Nordstrom (NYSE:JWN) and others coming out with positive surprises and a favorable outlook.

Total earnings for these retailers are up +3.9% from the same period last year on +4.2% higher revenues, with a below index average 60.5% beating EPS estimates and a very low of 44.7% coming ahead of revenue estimates (Read: 5 Stocks to Buy on Strong Housing Data )

New home sales raced close to a nine-year high in July. However, sales of existing homes declined 3.2% in July to a seasonally adjusted rate of 5.39 million, lower than the consensus estimate of 5.57 million.

Job Additions Surge, Hourly Earnings Increase

The U.S. economy created a total of 255,000 jobs in July, considerably higher than the consensus estimate of 180,000. The economy added higher-than-expected new jobs for the second straight month.

Although, the unemployment rate in July of 4.9% was higher than the consensus estimate of 4.8%, it was in line with June’s rate. This because the labor force participation rate had increased to 62.8%.

Further, the average hourly earnings gained 0.3% or 8 cents in July from June to $25.69 per hour. It was also higher than the consensus estimate of 0.2% and June’s 0.1% increase while year-ago gains advanced by 2.6%.

Oil Price Move Higher

In August, oil prices continued to move northward. During the first week, oil prices gained following a surprisingly large draw on gasoline stockpiles. Rise in oil prices helped benchmarks finish in the green for the second week. Saudi Arabia’s Energy Minister Kahlid al-Falih showed willingness to talk with major crude-oil producers to limit oil production.

During the third week, crude hit a one-month high. However, during the fourth week, analysts at Morgan Stanley (NYSE:MS) said that any agreement between major oil producing nations to freeze crude production is "highly unlikely", leading to a decline in crude prices.

Following a particularly disappointing inventories report, oil prices closed at a three-week low during the last week of the month. However, WTI crude gained nearly 7.5% over August, the highest monthly gain since April.

Rate Hike Odds Increase

Fed’s July meeting minutes showed that some policymakers argued that a rate hike should take place soon as the labor market was nearing full employment. However, the majority agreed that more positive data is required to initiate such a move.

Additionally, comments from some Fed officials raised speculation of a rate hike in the near term. Kansas City Fed President Esther George said that after observing the job market, inflation and Fed’s forecast for the same, she considers “that it would be appropriate” to raise rates gradually.

Further, Dallas Fed President Robert Kaplan said that levels of inflation and employment are improving and “GDP growth in the second half of the year will be strong." He added that following “very good, healthy financial conditions,” it would be appropriate to raise rates.

Speaking at the Jackson Hole economic symposium, Fed Chair Janet Yellen said that the case for hiking federal funds rate has gained in strength in “recent months.” Yellen asserted that the case for a rate increase is gathering steam, thanks to a solid labor market and positive outlook on economic activity and inflation. Fed Vice-chairman Stanley Fisher also advocated a rate hike in the near term. Financial stocks have gained recently due to these developments.

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5 Star Performers for August

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Written By: Zacks Investment Research