In August, global equities experienced a notable rebound, with the global stock index rising by 2.5%. This recovery came after a sharp sell-off at the beginning of the month, driven by concerns over U.S. economic data, the retreat in big tech stocks, and the unwind of Japan’s carry trade. Mixed economic data remained a central focus in August as the Federal Reserve prepares to initiate its easing cycle in September.
US economic data released in August painted a mixed picture for investors. Inflation continued to cool as the headline U.S. Consumer Price Index (CPI) showed a year-over-year increase of 2.9%, but still above the Federal Reserve’s target. Retail sales signaled continued consumer momentum, but cracks started to show in the labor market. The pace of job gains came in well below expectations and the unemployment rate unexpectedly rose to 4.3%, its highest level in almost 3 years. Despite this, Federal Reserve Chair Jerome Powell signaled that the Fed would begin its easing cycle in September, however, it is still unclear on the amount of the rate cut. The market is anticipating a cut of either 0.25% or 0.50%.
Despite the volatile start, the S&P 500 saw positive performance, gaining 2.4% for the month and 19.5% year-to-date. Value stocks outperformed growth stocks again this month as market performance was less reliant on the performance of mega cap tech stocks. Foreign developed stocks had a standout month, up 3.3%. Bond investors were also pleased as medium and longer-term interest rates continued to fall, leading to a gain of 2.4% for the US Aggregate Bond index.
Looking ahead, the market's focus will likely remain on the Federal Reserve's rate decision coming up at their September meeting and its impact on economic growth. The anticipated easing cycle is expected to provide support to the markets, but investors will be closely watching inflation trends and labor market data for signs of sustained recovery. Additionally, geopolitical developments and corporate earnings will continue to play a crucial role in shaping market sentiment.
In summary, August 2024 was a month of recovery and resilience for global equities, despite underlying economic challenges. The interplay between inflation, Federal Reserve policies, and economic data will be key determinants of market performance in the coming months.