August Market Commentary

August Market Commentary by Laurium Capital – Investment Advisor for the Thornbridge Global Opportunities Fund

After a volatile start, August was another decent month for global equities, with the MSCI ACWI up 2.6% in $ terms. The strong headline result belies a challenging month for stock picking, in particular for the stocks that have led the market strength.

The catalyst for the early August market volatility was weak US ISM Manufacturing index data and then a weak US employment report, with the unemployment rate highlighting rising risk of a US recession and causing US bond yields to plummet to the lowest level this year. This shift in sentiment and reduction in risk appetite coincided with an unwind in the Yen carry trade (with a hawkish BoJ hike at the end of July adding fuel to the fire). August liquidity conditions were also unhelpful and the highly priced “Magnificent 7” sold off as investors rotated into more defensive positions.

A string of better economic data during the remainder of the month and steady corporate earnings reports (with Nvidia a notable possible exception – see later) saw recession fears easing and risk asset prices firmed significantly throughout the rest of the month. Nevertheless, bonds and money market yields remained well bid, and the US yield curve moved to reflect an expectation of 100bps of Fed cuts over the three remaining meetings of the year (excessive in our judgement).

US Fed Chair Powell’s speech at Jackson Hole gave the green light for a September US rate cut noting that the “time has come” for policy to adjust. Key takeaways on the Fed’s dual mandate were that his confidence has grown that US inflation is on a sustainable path back to their 2% target and that the Fed doesn’t “seek or welcome” further labour market cooling. Our reading of these comments is that inflation is no longer in the driving seat of Fed decision making (so long as incoming prints remain relatively well behaved) with the health of the labour market now taking the wheel.

Noteworthy amongst corporate newsflow was Nvidia’s Q2 earnings report. Stellar topline expectations were largely met by Nvidia, however gross margin (both reported and expected) came in slightly shy of lofty expectations as the company made a provision against wasted Blackwell inventory-in-process and precipitated a 6% sell-off on the day. Our view remains positive on Ai infrastructure capex and the broader semiconductor outlook.

Author: Felix Wigdahl

Felix is a member of the investment funds team and is involved in portfolio construction, investment committees, trade execution and monitoring.