Stocks defy gravity despite volatile markets, says Bank of America

Investing.com -- The S&P 500 saw a drop of as much as 8% from its peak in early August but managed to rally by the end of the month, delivering a total return of 2.4%, edging closer to a record high.

According to Bank of America strategists, the adage "best days often follow worst days" proved accurate this summer as the stocks “defy gravity despite volatile markets.” August marked the fourth consecutive month of gains and the ninth positive month in the past ten months.

The VIX volatility index spiked to 65 during intraday trading last month, reaching a post-COVID high, but then declined at the fastest rate on record.

All major asset classes posted gains: long-term Treasuries rose 2.0%, investment-grade corporate bonds increased 1.5%, and cash returned 0.5%.

Gold led asset class performance in August, with a return of 3.6%, bringing its cumulative return since the end of 2021 to 39%, compared to the S&P 500’s 24%. International equities lagged behind U.S. stocks in local currency terms (+0.5%) but outperformed in USD terms (+2.9%) amid a 2.3% decline in the U.S. dollar.

SPW, the equal-weighted S&P 500, matched the performance of the S&P 500 in August, but reached an all-time high, signaling a broader equity recovery compared to prior years. SPW has now risen 7.0% over two months, compared to the S&P 500’s 3.7%, marking the largest two-month lead for SPW since March 2021.

"We continue to favor SPW over SPX,” BofA strategists noted.

Sector-wise, the August performance was mixed.

Defensive sectors led amid concerns about an economic slowdown, with Staples (+5.8%), Health Care (+5.0%), and Utilities (+4.3%) showing strong gains.

In contrast, cyclicals like Energy (-2.3%) and Consumer Discretionary (-1.1%) struggled.

Sectors benefiting from potential rate cuts, such as Real Estate (+5.6%) and Financials (+4.4%), also outperformed, while secular growth sectors like Communication Services (+1.2%) and Technology (+1.2%) underperformed.

Meanwhile, the Russell 1000 Value index gained 2.5% in August, outperforming the Growth index by 0.5 percentage points, marking the second consecutive month of Value’s outperformance (+6.7 percentage points in July). This was the first back-to-back lead for Value since December 2022.

High-quality stocks outperformed low-quality stocks by 1.9 percentage points (+1.7% vs. -0.2%), marking the third consecutive month of outperformance. However, year-to-date, low-quality stocks remain well ahead.

Source: Investing.com