Market update: August 2022

August was a month of two halves, as the positive momentum from July continued until the central bankers met in Jackson Hole mid-month. Optimism took a hit due to a comment from the Chairman of the Federal Reserve, and due to the rise in interest rates (to the level of June 2022). 

“Our responsibility to ensure price stability is unconditional.”

- Jerome Powell, Chairman of the Federal Reserve

The falling stock markets and the high inflationary pressure of July (8.9%) in the Eurozone dented confidence. The hope for fewer interest rate hikes from central banks in the near future has therefore vanished. Emerging markets, on the other hand, performed better than developed markets thanks to good market performance in Taiwan and India.

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

Inflation and interest rate hikes are dominating the market again. Volatility will likely persist until the central banks' meeting in September.

Stocks in developed countries started the month well, but the positive development was ruined in the second half of the month after comments from the Federal Reserve (FED). This was during the annual meeting attended by central bankers from all over the world. The FED indicated that reducing inflation is the highest priority for the American central banks. For this, they even accept some short-term pain in the markets. 

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

Stocks in emerging markets performed better than 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 instead of raising interest rates. With this, China aims to support growth after the extensive lockdowns that have damaged the economy. 

The US and European 10-year yields rose sharply - to the level of June 2022 - with 49 basis points in the US and 71 basis points in Germany. 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 (-0.88% and -4.5% respectively), with the spread widening over the month as the risk of a recession grew due to rising interest rates. Following the ECB's interest rate hike (0.5%) last month, money market returns 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 to reducing volatility in the markets.

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

What does all this mean for my plans?

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