Investor confidence has been tested this month as global indices have put in their worst performance so far this year, weighed down by the realisation UK, US and European interest rate rises have further to go, despite softening economic data, and by a continued sluggish recovery in China.

As of last Friday’s market close (25 August), the FTSE 100 index was down 4.7% on the month and the FTSE 250 index was down 5.3%.

In the US, the S&P 500 index was down 3.4%, the Nasdaq Composite index 4.5% lower and the broad-based Russell 2000 index down 6.7% for the month.

The pain was also felt in Europe, with the Euro Stoxx 50 index down 4%, and in Asia, with Japan’s Nikkei 225 losing 4.7% and China’s Shanghai Composite index losing 6.9% as its troubled property sector continued to weigh on sentiment. Chinese markets perked up on 29 August after Beijing halved the stamp duty on stock trading
but experts suggested this could only have a short-term boost.

There were high hopes the latest results from AI (artificial intelligence) poster child Nvidia (NVDA:NASDAQ) would blow estimates away, which they duly did, but after a stellar performance already this year the shares failed to hold their gains and finished the day lower.

Nividia’s earnings beat the Wall Street consensus by nearly 30%, more than the previous quarter when the market suddenly woke up to the company’s potential as an AI beneficiary, while sales were over 20% above estimates.

The firm’s sales guidance for the current quarter was 27% above market forecasts, yet the shares fizzled, which raises the question of what would have happened if earnings had merely met or, heaven forbid, missed expectations?

There was also a great deal of focus on the central bankers’ symposium in Jackson Hole, Wyoming, and on what hints the Federal Reserve Chairman would give regarding the trajectory of US interest rates.

In the event, Jerome Powell didn’t beat about the bush, his opening comments being: ‘It is the Fed’s job to bring inflation down to our 2% goal, and we will do so… Although inflation has come down from its peak, a welcome development, it remains too high… We are prepared to raise rates further, if appropriate, and intend to hold policy at a restrictive level until we are confident inflation is moving sustainably down toward our objective.’

Despite the Fed sticking to its guns, investors reacted positively in the aftermath of the gathering, confident in their belief record low unemployment, strong business investment and resilient consumer spending mean a ‘soft landing’ for the US economy is still the most likely outcome.

‹ Previous2023-08-31Next ›