August market insights

Stocks end August lower despite easing inflation concerns.

Article published: September 08, 2023

By: Neil Gilfedder, CFA® Chief Investment Officer

What happened

Markets fell in the first part of August and, despite a late-month rally, closed the month down. This was the first down month since February. In the U.S., large-cap stocks (S&P 500) ended down 1.59% for the month and small caps (S&P 600) fell 4.14%. A broad measure of bonds, the Bloomberg U.S. Aggregate Bond Index, ended down slightly by 0.64%. Emerging-market stocks (MSCI Emerging Markets) fell 6.16% while developed-market international stocks (MSCI EAFE) dropped 3.83%. It was a moderately volatile month, with the S&P 500 closing higher or lower by more than 1% on only five days.

Why it happened

Markets go up and down each day for lots of reasons, but since inflation began rising in early 2021, the main driver of markets has been interest rates, and August was no exception. When economic news came in, the market asked: what does this mean for future interest rates?

The month started with news that Fitch Ratings, one of the agencies that rates bonds, downgraded the U.S. government’s debt because of concerns about future debt-ceiling standoffs and the increasing amount of government debt. Fitch’s downgrade fueled expectations that interest rates will rise further, sending stocks and bonds down, but the effect was short lived.

Markets kept a close eye on new data about inflation and the economy – will the Federal Reserve decide to raise interest rates further to rein in inflation, or has inflation peaked? Economic data mostly suggested the economy remained solid and wasn’t running too hot, starting with a labor report showing positive job creation for the thirty-first month in a row (although at a slowing pace) and unemployment remaining very low. While consumer confidence data weakened, sales of new homes were stronger than expected. Finally, the inflation report showed inflation continuing to moderate. Yet, in a speech at the end of the month, chairman of the Federal Reserve Jerome Powell warned that inflation remained too high and that the Fed would raise rates if appropriate.

What it means for you

Markets move in response to news, specifically when the news brings surprises compared to what the markets expected. Our advice remains steadfast: To stay invested and to stay diversified. That’s why our portfolios are constructed to give you exposure to a broad set of asset classes, and we rebalance your account as needed to maintain broadly diversified allocations.

Meanwhile, for the moment, we’ve dodged a recession, and it’s possible we may get that desirable “soft landing,” where inflation comes back down without economic growth disappearing too. But it’s still uncertain. Talking to your financial planner can help you navigate uncertainty, and help you decide how much risk you’re comfortable taking to help you achieve your financial goals.


Investing strategies, such as asset allocation, diversification or rebalancing, do not ensure or guarantee better performance and cannot eliminate the risk of investment losses. All investments have inherent risks, including loss of principal. There are no guarantees that a portfolio employing these or any other strategy will outperform a portfolio that does not engage in such strategies. Past performance does not guarantee future results.


An index is a portfolio of specific securities (such as the S&P 500, Dow Jones Industrial Average and Nasdaq composite), the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index. Past performance does not guarantee future results.


Neil Gilfedder, CFA®

Chief Investment Officer

As executive vice president of investment management and chief investment officer, Neil oversees the team that manages investments for all Edelman Financial Engines clients. Neil directs the investment management operations and evolution of our proprietary investment methodology. Neil received a bachelor's degree in philosophy and economics from the University of York and a master's degree in economics from Stanford University.