August saw the markets putter along, with volatility a constant factor as economic concerns resurfaced. July's data provided some positive news for housing starts and industrial production. Unemployment continued to cause concern, with weekly jobless totals hitting a high in mid-August that we had not seen since November. The decline in market indices was precipitated by the Federal Reserve's concerns about the pace of economic recovery - observations that were issued on Aug. 9. As the month continued, the Dow Jones Industrial Average lost almost all its recent gains, declining more than 6 percent since its August high point. The Standard and Poor's 500 lost 7 percent of its value in the last half of August, too.
Many market experts noted that the recovery had slowed, and that future growth rates may be stuck at this subdued level for the next few months. The Conference Board's July report of leading economic indicators prompted some to forecast that growth rates will remain positive, but with almost negligible growth - below the levels hoped for at this stage of the recovery.
In light of rekindled economic worries, the equity markets are expected to remain under pressure. Some analysts do not expect to see stocks return to 2010 highs until 2011. As August ended, Wall Street experts continued to watch the Federal Reserve's moves for any indications of possible policy shifts. Many hope that the annual retreat involving the Fed, leading economists and central bankers - slated to conclude on Aug. 27 - will result in new strategies to spur growth. In the interim, uncertainty over the outcome of the Fed's conference continued to weigh on the markets, as investors played wait and see.
Risk-averse investors might continue to favor bonds rather than equities, but some investment experts think that fear of volatility is forcing the price of the bond market up significantly relative to potential yields. They warn that investors who spurn the stock market might pay a high price for this later. Some analysts are encouraging investors to consider investing in companies with international exposure that might provide some protection from problems in specific geographical markets.
Shareholders Acquire Proxy Access
While the markets suffered through the dog days of August, the Securities and Exchange Commission voted in favor of new rules that will give shareholders more control over the directors selected for company boards. This landmark ruling, which was some 30 years in the making, marks a monumental change in the relationship between shareholders and chief executives. Shareholders now have the right to submit nominations to the board through the company's own proxy materials. This right requires shareholders to own at least 3 percent of the company's equity for a minimum of three years.
Some critics fear that investors might not bring a strategic viewpoint to the table and that their involvement could hamper earnings. However, others believe that the new rule will provide shareholders with a much-needed sense that their best interests will not be overlooked - a perception that can only have a positive effect on overall stockholder morale.