Key takeaways over the month of August: 

  • Share markets ended August higher, boosted by strong company earnings. 
  • Tension in the Middle East escalated late in the month. 
  • 30-year US Treasury yields were volatile during August reflecting growing concerns. 

 

Summary of financial markets over August 

Share markets posted positive returns in August, helped by encouraging company earnings and resilient economic data. While markets finished the month higher, investors navigated periods of uncertainty as inflation concerns, expectations of further US interest rate rises, and fiscal deficit worries drove long-term US bond yields to multi-year highs. 

Geopolitical tensions remained in focus throughout August after the US expanded sanctions on Iran. These new measures target industries such as shipping, aviation and technology, while increasing pressure on companies and countries that continue to trade with Iran. The sanctions are intended to limit Iran's ability to generate revenue, particularly from oil exports, and could have broader implications for global trade and energy markets. 

Hostilities between the two countries moved past economic pressure late in the month and into early September, as the US and Iran exchanged strikes following a period of relative calm. The escalation served as a reminder that the conflict remains unresolved and has the potential to disrupt global markets. Oil prices and bond yields moved higher as investors weighed the risk of broader impacts on global energy supplies. 

Trade tensions also returned to the spotlight over the month. The US announced new tariffs on a range of Canadian goods, promoting Canada to respond with retaliatory measures. While the direct economic impact remains uncertain, the developments added to concerns about global trade, business confidence and supply chains. 

 

US markets 

For the second consecutive month, mid and small-cap companies underperformed their larger-cap peers, with the S&P 500 Index returning 2.7% (all returns are in local currency unless otherwise stated). Investors remained focused on company earnings, with particular attention on artificial intelligence (AI) related businesses, many of which delivered results that met or exceeded expectations. 

Supported by higher oil prices, the energy sector (+7.0%) was among the strongest performers during August, while technology (+6.3%) also posted strong gains following a series of positive earnings announcements from major AI-related companies. Over the past 12-months these two sectors have led the market, returning 46% and 34% respectively. 

 

European markets 

European share markets delivered modest gains in August, with the STOXX Europe 600 Index returning 0.5% over the month. Inflation remained above the European Central Bank’s 2% target in August, while economic growth stayed relatively subdued. Investors spent much of August assessing corporate earnings and whether policymakers would raise interest rates again at their September meeting. 

Sector returns were mixed over the month, with more than half of sectors posting negative results. Real estate was the weakest area of the market, while materials led gains. Information technology recovered from its July decline and rose 4.0%. The energy sector, despite strong international performance, finished the month in negative territory. 

 

Australasian markets 

Australian1 and New Zealand2 share markets advanced in August, with the New Zealand market (+1.6%) marginally outperforming its Trans-Tasman counterpart (1.5%). Sector performance was mixed in Australia, with health care surging an impressive 18.8%, followed by materials and utilities, rising 12.2% and 7.4%, respectively. 

The latest New Zealand company reporting season provided further signs that business conditions are improving, although the recovery remains gradual. Investors were less focused on past results and more interested in what companies said about the future. Expectations for New Zealand shares remain relatively cautious, meaning even small pieces of good news were welcomed by investors. Overall, the reporting season suggested that conditions are stabilising for many companies, with confidence in the earnings outlook gradually improving. 

 

Fixed interest 

Longer-term US bond yields were volatile during August, with 30-year Treasury yields briefly reaching their highest level in decades. Investor concerns about growing US government debt, increased bond supply, inflation, and geopolitical risks put upward pressure on yields (yields move in the opposite direction to bond prices). While the US Treasury announced measures aimed at supporting longer-term bond markets, this only provided temporary relief as the underlying concerns remained in place. US 30-year Treasury yields ended the month slightly higher at 5.24%. 

New Zealand government bond yields were relatively stable during August as investors weighed signs of an improving local economy against ongoing uncertainty around global growth, trade tensions and geopolitical developments. The Reserve Bank of New Zealand remained a key focus for markets, raising the Official Cash Rate at its 2 September meeting, in line with expectations and marking its second consecutive increase. The 10-year government bond yield finished the month at 4.75%. 

The differing fortunes of various market indices are illustrated in the chart below. 

Market Commentary Graph 31 August

Note: Returns are in local currency terms.  

 

The outlook 

If there has been one defining feature of markets this year, it has been the need to navigate a constant stream of cross currents. The past few months have been no exception. At various points, markets had to weigh renewed Middle East tensions, shifting interest rate expectations, rising bond yields, technology and broader corporate earnings, AI-related volatility and tariff developments. 

Despite this, global equities remain at near record highs and investment returns have generally been decent. Equity markets have ultimately continued to climb the proverbial wall of worry, and our lead Investment Manager, JBWere, expects this to continue. Every new risk and cross current has generated concerns that the rally might finally falter. Instead, markets have repeatedly demonstrated an ability to absorb uncertainty, reassess risks and move forward. A generally resilient economic backdrop has helped enable this. That does not mean risks no longer matter. Rather, it reminds us that investors must be careful not to confuse noise with fundamentals. While the environment remains complex, the most important drivers of long-term market outcomes remain largely unchanged. Economic growth, corporate earnings, labour market conditions, profitability and capital allocation still matter most.  

Further shocks are inevitable, but successful investing has never depended on forecasting every turn in the news cycle. It depends on maintaining discipline and focusing on the drivers of long-term value creation. From a distance, markets have appeared far calmer than they have felt day to day. Beneath relatively stable index returns has been a market marked by volatility, shifting narratives and growing dispersion. Artificial intelligence, tariffs, geopolitics and monetary policy have all competed for investor attention, yet the fundamental backdrop has remained notably resilient. In JBWere’s view, that remains the most important signal. In a year defined by uncertainty, maintaining a long-term perspective may prove more valuable than ever. 

1. As represented by S&P/ ASX 200 Index. 

2. As represented by S&P/NZX 50 Index. 

 

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