August | Monthly market commentary

Global markets rose 2% in sterling terms during August despite some initial investor caution. In the previous month, some investors became concerned that share prices in parts of the technology sector had risen too far, leading to a temporary sell-off in some of the largest companies, particularly in the US and Asia. A recovery in August helped support broader stock markets. Higher oil prices and continued tensions in the Middle East also kept concerns about inflation and interest rates firmly in focus.

US markets delivered their strongest August performance since 2021, with the S&P 500 rising 2.0% and the technology-focused Nasdaq 100 gaining 3.5% in sterling terms. The S&P 500 company reporting season ended on a strong note, with overall profits on track to grow 52% compared with the same period last year. This would be the highest profit growth for the S&P 500 since Q2 2021. Performance among the biggest technology companies were mostly good. Nvidia attracted significant attention after reporting quarterly revenue of $96.2 billion and forecasting further strong growth in the years ahead. Software and cybersecurity businesses also performed well, with Salesforce and CrowdStrike benefiting from continued demand for AI-related products and services.

At this year's Jackson Hole Symposium, Federal Reserve Chair Kevin Warsh said inflation remained too high and that the central bank still had "work to do". Investors responded by increasing expectations that US interest rates could rise by 0.25% in September. This came despite inflation easing for a second consecutive month, falling from 3.5% in June to 3.4% in July, helped by lower energy prices.

European markets gained 0.9% in sterling terms. Although volatility in the previous month made investors more cautious, a recovery in technology and other growth-focused companies supported returns. Growing interest in technology companies, alongside positive analyst views for semiconductor equipment manufacturer ASML, helped reassure investors that spending on AI-related technology is likely to remain strong. Inflation across the Eurozone rose slightly from 2.8% in June to 2.9% in July, keeping attention focused on energy prices and future interest rate decisions. Economic growth remained uneven across the region, with many businesses continuing to face higher operating costs.

Asian markets gained 2.6% in sterling terms, although returns varied between countries and remained closely linked to the technology sector. South Korea stabilised following July's sharp falls, with technology giants SK Hynix and Samsung announcing major share repurchase programmes to support investor confidence. Japan recovered from earlier volatility, with Japanese equities rising 2.6% in sterling terms as investors returned to many of the country's largest technology companies. Technology continues to be both a key driver of growth and a major source of volatility across the region.

The UK lagged behind many overseas markets as investors continued to favour faster-growing sectors. The FTSE 100 rose 0.2% over the month. Losses in some parts of the market were offset by gains in precious metal companies such as Fresnillo and Endeavour Mining, which benefited from higher gold prices. The UK market's larger exposure to sectors such as banks, consumer goods and energy companies helped provide stability, but it was unable to match the performance of more technology-focused markets.

The Bank of England is widely expected to leave interest rates unchanged at 3.75% when it meets on 17 September. However, investors remain alert after three members of the Monetary Policy Committee voted for a rate increase at the previous meeting. UK inflation rose from 2.6% in June to 2.9% in July, its first increase since March and a further move away from the Bank's 2% target. Higher household energy bills were the main reason for the increase. Investors increasingly believe that further interest rate rises remain possible later in the year, particularly after Governor Bailey warned that geopolitical tensions could add to inflationary pressures.

Geopolitical developments continued to influence markets throughout August. Hopes for progress towards a US-Iran agreement faded after the previous 60-day ceasefire expired. As negotiations stalled, Iran maintained its closure of the Strait of Hormuz, increasing concerns about global energy supplies and the potential impact on inflation. The US also expanded sanctions through its Operation Economic Outcast programme. While alternative export routes helped reduce some of the disruption, central banks continued to highlight the inflation risks associated with a prolonged period of uncertainty.

Trade tensions also intensified during the month. Following the introduction of a 50% US tariff on key Canadian commodities, Canada responded with retaliatory tariffs covering more than 700 products, representing almost $20 billion of US goods. Elsewhere, the UK government reduced the amount of steel that can be imported without tariffs by 51%, with higher duties applying above those limits as part of an effort to support domestic industry.

Commodity markets generally strengthened during August. Brent crude oil prices rose from $80 to around $94 per barrel before easing back to approximately $90 as alternative shipping routes through Oman emerged. Industrial metals also benefited from continued investment in AI infrastructure, helping push copper prices to fresh highs. Gold strengthened as investors sought assets traditionally viewed as a store of value during periods of uncertainty, rising from around $4,100 at the beginning of the month to above $4,400 by month-end.

Bond markets faced a more challenging backdrop. Governments borrowed more money during the month by selling additional bonds to investors, putting pressure on bond prices and pushing yields higher. Government bond markets in the UK, US and Europe all came under pressure as investors increasingly accepted that interest rates may remain higher for longer in response to persistent inflation concerns and elevated energy prices.

In the US, the 30-year Treasury yield rose to its highest level since 2007. Conditions improved slightly towards the end of the month after US Treasury Secretary Scott Bessent announced an expansion of the government's bond buyback programme, designed to help support the bond market.

We remain constructive on equities over the medium term. While uncertainty surrounding geopolitics, inflation and government policy is likely to persist, markets have generally shown resilience in the face of ongoing challenges. Company profits, economic growth and long-term themes such as continued investment in technology and artificial intelligence remain important drivers of markets. However, periods of volatility should be expected as investors continue to assess the outlook for inflation, interest rates and global economic growth.

Past performance is not a reliable indicator of future performance. The value of an investment can go down as well as up and your client may get back less than they’ve paid in.