Market update: August 2022

August was a month with two faces, as the positive momentum of July continued until central bankers met in Jackson Hole mid-month. Optimism took a knock because of a comment by the Federal Reserve chairman. And because of the rise in interest rates (to the June 2022 level). 

"Our responsibility to ensure price stability is unconditional."

- Jerome Powell, Chairman Federal Reserve

Falling equity markets and July's high inflationary pressure (8.9%) in the Eurozone put a dent in confidence. Consequently, hopes for fewer central bank rate hikes in the near future flew. By contrast, emerging markets outperformed developed markets thanks to good market performances 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 once again dominate the market. Volatility is likely to persist until the September central bank meeting

Equities in developed countries started the month well, but the positive trend was killed in the second half of the month following comments by the Federal Reserve (Fed). This was during the annual meeting attended by central bankers from around the world. The Fed indicated that reducing inflation is the top priority for U.S. central banks. For this they are even taking some short-term pain in the markets. 

The S&P 500 rose 4% in the first half of the month, but ended the month down -4.2% despite positive manufacturing and wage data. Equities in Europe also followed their US counterparts and the Stoxx 600 index posted ~5% losses during the month. Probably as the energy crisis continues to weaken the outlook in the second half of the year.

Emerging market equities outperformed their developed counterparts. They delivered positive returns (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 rather than raising interest rates. In doing so, China aims to support growth after the extensive lockdowns that have hurt the economy. 

U.S. and European 10-year yields rose sharply -to the June 2022 level- by 49 basis points in the U.S. and 71 basis points in Germany. Thanks to the tenacity of global central banks in controlling inflation with higher interest rates. 

High yield bonds and corporate bonds also posted negative returns (-0.88% and -4.5%, respectively) with the spread widening during the month as the risk of recession grew due to rising interest rates. After the ECB raised interest rates (0.5%) last month, money market yields continued to rise and closed the month in positive territory.

What does September have in store for us? 

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

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

What does all this mean for my plans?

Don't let the market disrupt your long-term goals. Vive's investment strategies take into account market downturns. Ultimately, well-diversified portfolios are the key to long-term success. Consistent periodic investing in periods such as these is crucial to take advantage of falling markets.