What’s next for the market after the best August in years?

What’s next for the market after the best August in years?
Written by:
Jayson Derrick
31st August, 23:50
Updated: 11th September, 15:18
  • The S&P 500 index gained 7% in August.
  • Both the Dow Jones and Nasdaq indices notched greater returns.
  • Experts are confliced on what's next for the major indices.

The S&P 500 index recorded its best August performance since 1986 after gaining 7%. Despite a strong rally, the index underperformed the Dow Jones Industrial Average’s 7.6% gain and the tech-heavy Nasdaq’s 9.6% gain. 

What’s in store for the major indices and the broader market in September and beyond? CNBC asked the very pertinent question to four experts.

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Expect a ‘pause’

The Federal Reserve couldn’t have made it any clearer that the U.S. central bank will remain “very accommodative for a while,” The Carlyle Group co-founder David Rubenstein told CNBC. Meanwhile, neither the Democratic Party nor the Republican Party is “saying things that are going to scare” the market ahead of the November presidential election.

So while the political risk is minimized, there is reason to believe the market still has more upside to record, he said. But the market simply can’t maintain its recent momentum and there will “be a pause at some point.”

Here is a guide on how investors can gain exposure to the S&P 500 index.

‘Signs of euphoria’

The market is starting to show signs of entering a state of “euphoria,” partly fueled by retail investors, Omega Family Office Chairman and billionaire investor Leon Cooperman told CNBC. 

Two of the more notable signs seen over the past few months that could foreshadow what’s next include: 1) Eastman Kodak Company’s (NYSE: KODK) stock soaring from $1.50 all the way to $60 in such a short period of time, only to fall 90%, and 2) shares of Hertz Global Holdings Inc (NYSE: HTZ) jumping from less than $1 a share to $5 a share despite a pending bankruptcy.

Catch-up opportunities.

Investors are likely to look to start rebalancing their portfolios over the next few months to identify better longer-term opportunities, Douglas C. Lane Associates Managing Partner Sarat Sethi told CNBC. Some of the tech stocks are trading at 40 to 50 times earnings while at the same time financials, cyclical, and industrial stocks are trading at a much lower valuation.

“They just haven’t performed like we’ve been expecting them to given where we think the economy is going to go,” he said.

Wait for ‘greater clarity’

Stocks recorded a “monstrous” performance in August, marking a complete reversal from March’s meltdown, Neuberger Berman Group President Joseph Amato told CNBC. There is some reason to justify the rally, including better-than-expected second quarter earnings — although off an “abysmally low” bar. 

Looking forward, the market should be stuck in a trading range as the American public works out “important policy issues” in the November election, he said. As such, the market is likely to “tread water for a bit” until there is greater clarity on where the economy and the country is headed.

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