“Down the lanes of August – and the bees upon the wing,All the world’s in color now, and all the song birds sing.Never reds will redder be, more golden be the gold,Down the lanes of August, and the summer getting old.”
“Down the Lanes of August” – 1923 Edgar Albert Guest (1881-1951)
Financial markets dominated the month. Puerto Rico defaulted on a bond payment, marking the first time a U.S. commonwealth had done so. In seven business days the Shanghai Index lost 27% of its value, or about $1.5 trillion. In six days, U.S. stocks fell 11%, costing investors around $2.8 trillion. Markets in other parts of the world shared similar fates. The VIX, a measurement of volatility that had spent much of the year in the mid to high teens, spiked to 40.74 on the 24th, the day the DJIA was down 3.6%. Another measure of volatility looks at the closing price of the DJIA versus the previous day. On only three occasions in the preceding four months did the index close up or down more than 1.5%. In August, that happened five times. Volatility is disquieting, but provides opportunities for traders. Investors should ride out churning seas.
The media made much of the point moves in the Dow Jones, while paying less attention to the less dramatic percent changes. Certainly, those few days were enough to wake a complacent investor from his August slumber, but they didn’t come close to setting records. Yes, the 588 points in the DJIA lost on August 24th exceeded the 508 points lost on October 19th, 1987, but to be equivalent the Dow Jones would have had to have lost 3,700 points!