Dow heads for third day of gains, but can’t help finishing August lower

The Dow and the broader stock market are on track for a third day of gains in a row Friday, promising to make it the best week since early June.

Optimism that trade tensions between the United States and China might ease helped the market higher this week.

The Dow traded 130 points, or 0.5% higher Friday morning. The S&P 500 and the Nasdaq Composite are up 0.5% and 0.4%, respectively.

“US equities are poised to close out the month with a third straight day of strong gains turning what was looking like a miserable month a few days ago into a much less sinister-looking backdrop,” wrote Paul Hickey at Bespoke Investment Group.

But the key for the market will be if gains can sticks around next month.

On the last trading day in August, stocks are on track to log their second worst month of the year. Only May was worse. The Dow and the S&P are set to slip 1.9% in August. The Nasdaq stands to shed 2.5%, according to Refinitiv.

May and August are the only two negative months for stocks this year.

Although August is thought of as a quiet month for the market, this hasn’t held true in the past few years.

Trade tariffs, retaliation, harsh rhetoric and recession warnings flashing from the bond market dominated the market this month.

President Donald Trump threatened an additional 10% of tariffs on $300 billion of Chinese imports, some kicking in the first trading day of the month, which led the Dow to have its biggest intraday swing of the year. These tariffs will also hit consumer items like toys and iPhones, which is worrying given the slowing US economy is being kept alive by strong consumer spending.

As the trade tensions escalated, worries about a currency war also grew, particularly after the Chinese government devalued its yuan to fall below the 7-to-1 ratio against the US dollar for the first time in a decade.

On the back of this, August 5 became the worst day of the year for stocks.

Investor worries helped safe haven assets like gold and Treasuries higher.

Gold prices rallied to a six-year high. The 30-year US Treasury yield dropped to its lowest level on record this month, while the 10-year yield fell to a three-year low. Yields and prices move opposite to one another.

The US yield curve inverted on multiple occasions in August, flashing a recession warning sign. Yield curve inversions have often preceded recessions in the past and are a sign that investors are nervous about the immediate future of the economy.

Meanwhile, Trump’s criticism of Federal Reserve Chairman Jerome Powell also continued throughout the month. At one point, the president tweeted “my only question is, who is our bigger enemy, Jay Powell or Chairman Xi,” referring to Chinese President Xi Jinping.

Powell stuck to his guns at the Fed’s annual Jackson Hole meeting, acknowledging the risk of an economic slowdown in the Untied States without hinting whether the central bank would cut interest rates again in September.

Expectations for a quarter percentage point cut at the September 18 meeting is roughly 96%, according to the CME’s FedWatch tool.