Markets shrugged off a variety of international headwinds to end
August on a positive note. After enduring a tough first week,
benchmarks picked up speed, achieving multiple landmarks. This
upswing was powered by economic reports, most of which were on the
positive side. Encouraging earnings results and deal news also
lifted stocks. Together, these factors shrugged off negative
economic data coming out of Europe and, more importantly, the
effects of geopolitical tensions in Ukraine, Gaza and Iraq.
For the month, the S&P 500 advanced 3.8%. The index registered
its best August performance since 2000. The Dow and the Nasdaq too
gained 3.2% and 4.8%, respectively. The Dow and S&P 500
registered their best monthly gains since February.
Encouraging economic data and deal news provided a boost to
markets. Most of the worrisome news was external in nature. This
ranged from dismal economic data out of Europe to conflicts in
Iraq, Gaza and Ukraine. Possibility of Eurozone stimulus measures
and a banking rescue plan in Portugal were among the few positives
on this front.
Earnings and Deal News
The month featured robust earnings results from companies including
Time Warner, Twenty-First Century Fox, Molson Coors Brewing
Company, Coach, Inc. and Toyota Motor Corporation, Home Depot, Inc,
Target Corp. and American Eagle Outfitters, Inc.
The failure of two high-profile merger deals -- Sprint Corporation
) and T-Mobile U.S. Inc. (
), and Time Warner Inc. (
) and Twenty-First Century Fox, Inc. (
) -- dragged down the markets. However, news of a deal between
Dollar General Corporation (
) and Family Dollar Stores Inc. (
) was also welcomed by investors.
Shares of Tim Hortons Inc. (
) jumped 8.5% after Burger King Worldwide (
) agreed to buy the Canadian restaurant chain for about $11.4
billion. This will create one of the biggest fast-food chains in
Amazon.com Inc. (
) announced the acquisition of Twitch Interactive, a video game
streaming company, in an all-cash deal for around $970 million.
This will be the second biggest acquisition by Amazon and will
enhance the company's online media and content offerings.
Domestic Economic Data
Upbeat ISM Services Index, factory orders, trade balance started
off a month of largely positive economic reports. Industrial
production rose 0.4% while PPI for finished goods increased 0.1% in
July, in-line with the consensus estimate. Housing data, including
reports on homebuilder confidence, existing home sales and building
permits were encouraging.
Separately, leading indicator index numbers, durable orders and
consumer confidence also encouraged investors. The monthly survey
of manufacturers in the New York State by the Federal Reserve Bank
of New York showed modest improvement in business conditions. Q2
GDP's second estimate came in at 4.2%. This was higher than the
consensus estimate of 3.9%, indicating an economic recovery.
Discouraging data on retail sales and home prices were among the
few disappointing reports of the month.
External Economic Factors
Early in August, markets were boosted by a recovery plan for
Portugal's banking crisis. Per the plan, the country's central bank
announced it was splitting BES into a "good bank" and a "bad bank."
The good bank would receive a bailout of €4.9 billion from the bank
resolution fund. Subdued Chinese inflation data was the other
Downbeat European growth numbers, discouraging retail sales numbers
and disappointing Germany's investor confidence data were some of
the negatives for the week. GDP data from the Eurozone was dismal
but had little effect by the end of the day on the US markets.
Germany posted a higher-than-expected unemployment rate in August
with a dismal inflation rate of 0.8%. Spain saw annual deflation
rate of 0.5% in August. Moreover, Belgium's inflation rate reached
0.02%, the lowest level in about 5 years. Additionally, the
Eurozone's inflation rate is expected to decline from 0.4% in July
to almost 0.3% in August, much behind the ECB's target of 2%.
News from Jackson Hole
Both US Fed chairwoman Janet Yellen and ECB President Mario
Draghi's speeches at Jackson Hole, WY failed to encourage
investors. In her speech at Jackson Hole, Yellen said the economy
is approaching Fed's target of full employment and a stable
However, she also mentioned that there is no "simple recipe" that
the Fed could follow to determine whether it was achieving its
targets. She did not turn down the possibility of
earlier-than-anticipated rate hike if labor market conditions
continue to improve and the inflation rate increased more rapidly.
However, there were some lingering doubts about the timing of rate
hike, especially after Yellen failed to give any clear indication
on it during her speech.
Draghi also failed to provide any clear picture about weak growth
in the Eurozone. At Jackson Hole, he said the ECB is looking to
implement more flexible policies in order to combat the Eurozone's
high unemployment rate.
Draghi added fiscal policy should play a "greater role" in addition
to monetary policy for economic growth. However, he blamed major
economies for not implementing flexible fiscal policies. He
believes that the ECB alone cannot tackle high unemployment
prevailing in the Eurozone.
However, he also made comments at the same event which lifted
investor sentiment. Draghi said the currency bloc's political
leadership should move beyond the tight fiscal policy of the last
few years that has dragged down the region's growth and has done
little to combat deflationary pressures.
Investors remained concerned about Russia's military buildup along
the eastern border of Ukraine. The lingering tension led to fresh
sanctions being imposed on Russia. Moscow responded aggressively to
Western sanctions by imposing bans on import of fruits and
vegetables from Europe.
Tensions in Iraq also dented sentiments as the U.S. announced
airstrikes against ISIS and airdrop of medicine and food for
Meanwhile, Russian President Vladimir Putin's comments had eased
concerns related to geopolitical tensions. However, the situation
worsened when Moscow sent a big aid convoy without the consent of
the Kiev government or the participation of the International
Committee of the Red Cross (ICRC). Ukraine called this move a
"direct invasion" into its territory, and the U.S. and NATO
condemned the move.
Last Thursday, Ukrainian President Petro Poroshenko accused Russia
of sending troops into Ukraine in order to support the pro-Russian
separatists in the eastern region. It was reported that the
separatists have captured the town of Novoazovsk. The U.S. and the
European Union decided to strengthen their sanctions further
against Russia following this development.
In a recent development, Putin has compared Ukrainian military
tactics to that of Nazis when they invaded Russia. His statements
came in as Ukraine sought full membership of North Atlantic Treaty
Organization and the abolishment of a law banning membership in
Other Geopolitical Tensions
In Gaza, the Israel and the Palestinians agreed to extend the
ceasefire settlement by another five days. Before the 14th, they
were maintaining a 72-hour ceasefire agreement proposed by the
Egyptian government. U.S. President Barack Obama announced that the
U.S. will continue with their airstrikes over rebels in ISIS. He
also mentioned that the situation in Mount Srinjar improved
Meanwhile in United Kingdom, the international terror threat level
was increased to "severe" from "substantial" by the country's Joint
Terrorism Analysis Centre.
3 Star Performers for August
I ran a screen on
for companies with the following parameters:
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Research Wizard today
- Percentage price change over the last 4 weeks greater than or
equal to 20%
- Forward price-to-earnings Ratio (P/E) for the current
financial year (F1) less than or equal to 20. This picks out
stocks that are good value choices
- Expected earnings growth for the current financial year
greater than or equal to 20%
- Zacks Rank less than or equal to 2: This ascertains stocks
that have shown above-average returns over the last 26
(See the performance of Zacks' portfolios and strategies here:
About Zacks Performance
Here are the top 3 stocks among the 11 that made it through this
Canadian Solar Inc.
) is a vertically-integrated manufacturer of silicon ingots,
wafers, cells, solar modules (panels) and custom-designed solar
power applications. The company designs, manufactures and delivers
solar products and solar system solutions for both on-grid and
off-grid use to customers worldwide.
Percentage price gain over the last 4 weeks = 42%
Canadian Solar has significant expected earnings growth for
FY2014 and holds a Zacks Rank #1 (Strong Buy). The stock's forward
price-to-earnings ratio (P/E) for the current financial year (F1)
Fortegra Financial Corp.
) provides distribution and administration services and
insurance-related products to insurance companies, insurance
brokers and agents and other financial services companies in the
Percentage price change over the last 4 weeks = 41.6%
Expected earnings growth for FY2014 = 29.8%
Currently, the company holds a Zacks Rank #2 (Buy) and has a P/E
(F1) of 13.34.
Star Bulk Carriers Corp.
) is a global shipping company providing worldwide seaborne
transportation solutions in the dry bulk sector. Star Bulk's
vessels transport major bulks, which include iron ore, coal and
grain and minor bulks such as bauxite, fertilizers and steel
Percentage price change over the last 4 weeks = 31.5%
Expected earnings growth for FY2014 = 31%
Apart from a Zacks Rank #1 (Strong Buy), Star Bulk Carriers has
a P/E (F1) of 18.53.
Domestic Positives Outweigh International
All three benchmarks have ended the month on a positive note.
Clearly, domestic strength has shrugged off economic weaknesses.
The only gnawing feeling in the minds of investors is the timing of
a Fed rate hike. The Fed Chair remains elusive about its timing and
markets seem to be ignoring this concern for now.
However, international tensions continue to linger. Conflicts
across the globe have already started affecting other nations like
the UK. Despite these factors, stocks seem to be on a high as of
now. If economic reports and other domestic factors remain positive
this month as well, stocks may well enjoy strong growth in the days
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SPRINT CORP (S): Free Stock Analysis Report
CANADIAN SOLAR (CSIQ): Free Stock Analysis
TIME WARNER INC (TWX): Free Stock Analysis
FORTEGA FIN CP (FRF): Free Stock Analysis
STAR BULK CARRS (SBLK): Free Stock Analysis
TWENTY-FST CF-A (FOXA): Free Stock Analysis
T-MOBILE US INC (TMUS): Free Stock Analysis
FAMILY DOLLAR (FDO): Free Stock Analysis Report
AMAZON.COM INC (AMZN): Free Stock Analysis
DOLLAR GENERAL (DG): Free Stock Analysis Report
BURGER KING WWD (BKW): Free Stock Analysis
TIM HORTONS INC (THI): Free Stock Analysis
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