The equity pullback continued into the first week of August but most indices regained a substantial amount of their losses by month’s end. The S&P 500 rose 2.4% in August, the Dow Jones Industrial Average advanced 2%, and the Nasdaq Composite added 0.7%. The one laggard on our chart (below) was the small-cap Russell 2000 index which, after surging 10.2% in July, retreated 1.5% in August.

On a percent-off-high basis, the S&P 500 ended August just 0.3% away from a new all-time high, while the Dow Jones has fully regained its losses. The Nasdaq Composite remains 5% below its all-time high, but has come a long way from as much as a 13.1% drawdown earlier this month.

Just two of the eleven sectors finished August in the red: Consumer Discretionary, which fell 0.2%, and Energy, which gave up 2.1%. The rotation into Value stocks gained momentum as Consumer Staples, Real Estate, and Health Care all posted gains of over 5% in August. Utilities and Financials were not far behind, advancing 4.8% and 4.6% in the month, respectively.

The labor market showed signs of cooling as the July nonfarm payrolls figure of 114,000 fell short of expectations and the unemployment rate rose for the fourth straight month to 4.3%, triggering the “Sahm Rule”. Gold broke through $2,500 per ounce for the first time, even as the inflation rate fell further below 3%. Home sales–both new and existing–rebounded on a month-over-month basis, while mortgage rates fell following hints of a Fed Funds Rate cut taking place at the next FOMC meeting.

Treasuries repeated their activity patterns from July: yields declined across the board and the middle of the curve posted the largest MoM declines. The 1-year T-Bill and 2-year note logged the largest yield declines, shedding 35 and 38 basis points, respectively.

Bond funds added further gains due to declining yields. The iShares 20+ Year Treasury Bond ETF (TLT) advanced 2.1% and the iShares iBoxx Investment Grade Corporate Bond ETF (LQD) rose 1.9%, the largest increases of bond funds tracked on our chart (below).

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