Market update: August 2022

August was a month of two halves, as the positive momentum from July continued until central bankers met in Jackson Hole halfway through the month. The optimism took a knock due to a remark from the Chairman of the Federal Reserve. And due to the rise in interest rates (to the level of June 2022). 

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“Our responsibility to ensure price stability is unconditional”.

- Jerome Powell, Chairman Federal Reserve

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The falling stock markets and the high inflation pressure of July (8.9%) in the eurozone dented confidence. The hope of fewer central bank rate hikes in the near future has therefore vanished. Emerging markets, however, performed better than developed markets thanks to good market performance in Taiwan and India.

Best fund performance in August 2022: Northern Trust Emerging Markets Custom ESG Equity Index Fund +1.02%

Inflation and interest rate hikes dominate the market once again. Volatility is likely to continue until the central bank meeting in September

Developed market stocks started the month well, but the positive development  was killed off in the second half of the month following remarks from the Federal Reserve (FED). This was during the annual meeting attended by central bankers from all over the world. The FED indicated that curbing inflation is the highest priority for the US central banks. To do this, they are even willing to accept some short-term pain in the markets. 

The S&P 500 rose by 4% in the first half of the month but ended the month at -4.2% despite positive manufacturing and payroll data. European stocks also followed their US counterparts and the Stoxx 600 index booked ~5% losses during the month. This is likely because the energy crisis continues to weaken the outlook in the second half of the year.

Emerging market stocks outperformed their developed counterparts. They delivered a positive return (1%) during the month and were the best-performing funds thanks to good performance in markets such as Taiwan and India. 

As one of the few economies, China is lowering interest rates instead of raising them. China aims to support growth following the extensive lockdowns that have damaged the economy. 

US and European 10-year yields rose sharply - to the level of June 2022 - by 49 basis points in the US and 71 basis points in Germany. This is thanks to the persistence of global central banks in controlling inflation with higher interest rates. 

High-yield bonds and corporate bonds also posted negative returns (respectively -0.88% and -4.5%), with the spread increasing over the month as the risk of a recession grew due to rising interest rates. Following the ECB's rate hike (0.5%) last month, money market yields continued to rise and closed the month positive.

What does September have in store for us? 

- Any peaceful resolution of the war in Ukraine will be crucial in reducing market volatility.

- The FED and ECB meetings are crucial in determining the future direction of the market. 

What does all this mean for my plans?

Do not let the market disrupt your long-term goals. Vive's investment strategies take the downward market into account. Ultimately, well-diversified portfolios are the key to long-term success. Consistent periodic investing in periods such as this is crucial to profit from falling markets.

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