Dow drops 200 points, still headed for best August since 1984

Stocks were mixed on Monday as the S&P 500 and Dow Jones Industrial Average wrapped up their best August performances since the 1980s.

The S&P 500 hovered just below breakeven while the Dow slipped 200 points, or 0.8%. The Nasdaq Composite outperformed with a 0.5% gain. 

The S&P 500 is up 7.2% month to date, putting the broader-market index on track for its biggest August gain since 1984. The Dow has rallied more than 7.8% this month and is also headed for its best August in 36 years.

This month’s gains have pushed the S&P 500 to record levels, officially confirming a new bull market has started. The Dow, meanwhile, erased its 2020 losses on Friday, closing the session with a year-to-date gain 0.4%.

Two big stock splits take effect Monday. Apple shares gained 2.8% as a 4-for-1 split took effect. Tesla shares added nearly 5% following its 5-for-1 split.

The August rally built on the market’s sharp rebound off the March 23 intraday lows. Since then, the Dow and S&P 500 are up 57% and 60.1%, respectively.

We “had hoped that the market would consolidate its gains since March 23, giving earnings a chance to rebound,” said Ed Yardeni, president and chief investment strategist at Yardeni Research, in a note. “However, Fed officials continue to drive up stock prices by committing to keeping interest rates close to zero for a very long time … Consequently, they are fueling the meltup in stock prices.”

Earlier this year, the Federal Reserve cut rates to zero and launched an open-ended asset-purchasing program to support the economy through the coronavirus pandemic. Last week, the central bank laid out an inflation policy framework that would keep rates lower for longer.

In an apparent long-term bet on the global economy, Warren Buffett announced Sunday that his Berkshire Hathaway conglomerate had acquired stakes of more than 5% in Japan’s five-leading trading companies. Those companies are Itochu Corp., Marubeni Corp., Mitsubishi Corp., Mitsui & Co., and Sumitomo Corp. The five businesses import everything from metals to food into Japan and provide services to manufacturers. 

The Dow kicked off the week with three new constituents and with Apple having a much smaller influence on the 30-stock average.

At Monday’s open, Salesforce, Amgen and Honeywell were included in the Dow, replacing longtime component Exxon Mobil, Pfizer and Raytheon Technologies.

Traders also looked ahead to Friday, when the latest U.S. jobs report is set for release. Economists polled by Dow Jones forecast that 1.255 million jobs were created in August.

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