Investment Commentary - August 2025

August was a solid month for equities, extending a run of positive monthly returns stretching back to May. The main drivers over the month were solid US earnings for Q2 and dovish comments from Federal Reserve Chair Powell at his Jackson Hole speech. On the earnings front, the earnings growth rate for the S&P was around 12% quarter-on-quarter, marking the third consecutive quarter of double-digit increases. This was more than double the growth rate forecast at the end of June. The dovish pivot from Fed Chair Powell, came after some weaker labour data, leading to growing expectations that the Fed would cut rates in September, despite inflation staying above target.

 

For bonds, the expectation of imminent cuts was tempered somewhat by concerns about the independence of the Fed. After repeated attacks from President Trump on Chair Powell for not cutting rates sooner, the President then tried to fire Lisa Cook, on the seven members of the Board of Governors, on alleged mortgage fraud grounds. The market’s immediate reaction was muted; however, the US yield curve did steepen slightly as inflation expectations rose.

 

All-in-all, US Treasuries pulled further ahead of their sovereign peers in their year-to-date returns, with further outperformance in August, primarily driven by the front end of the yield curve. A return of +1% was comfortably ahead of Gilts and Eurozone sovereign bonds, which returned -1.1% and -0.4% respectively over the period. Within the Eurozone, political upheaval in France saw the yield on their 10-year government bond reach the same level as that of the Italian equivalent, marking the tightest gap between the two in over twenty years. In credit markets, investment grade spreads narrowed further in developed markets, leading to slight outperformance over equivalent sovereign bonds. The Bloomberg Global Aggregate Index rose +1.2% during the period.

 

Global equities achieved a return of +2.5% in August, with most of the return occurring later in the month. Markets had started the period relatively weak, after the US jobs report for July came in much weaker than expected. However, they eventually rallied on the back of Powell’s reassuring comments at Jackson Hole. The S&P 500 slightly outperformed the Nasdaq, with gains of +2% and +1.7% respectively. With the prospect of further rate cuts in the US, Small caps were the standout performer during August, with the Russell 2000 returning +7% during August. Elsewhere, Japanese equities were strong after US-Japan trade tariff negotiations were concluded and Japanese economic data came in above expectations. The Nikkei subsequently returned +4.1% during the period. European and UK equities were also in positive territory, with returns of +1.2% and +1% respectively. Chinese equities enjoyed a strong month, with the Shanghai Composite up +8.1%, led by a continued resurgence in their technology stocks.

 

For commodities, it was another good month for precious metals. With faster rate cuts being priced in and concerns about sticky inflation lingering, the gold price rose +4.8% and the silver price rose +8.2%. After a strong few months, oil prices fell, with Brent Crude and WTI down -6.1% and -7.6% respectively. Copper prices bounced back a bit after a very weak July, with a return of +4.8%.

 

Within currencies, the US Dollar was relatively weak against most currencies, with the USD Index down -2.2% in August. The other major currency pairs were relatively unchanged against one another.

 

All figures quoted are local currency returns (and USD returns for commodities).