Market snapshot: anything but a quiet August

US markets began the final week of the month in mixed fashion, with tech stocks weighing but the less-exposed Dow Jones index nudging to a closing record high.

The traditionally quiet month of August has been anything but this year, with the turmoil experienced in the opening days by recessionary fears and an unwinding of the yen carry trade totally reversed as investors regained their footing. Despite a small dip yesterday, the benchmark S&P 500 has added some 8% since the early August sell-off, the Dow around 6% and the smaller cap Russell index has also seen renewed buying interest as investors have sought alternatives to the frothy valuations of the mega-cap technology stocks.

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Indeed, given their disproportionate weighting and current market darling NVIDIA Corp (NASDAQ:NVDA) in particular, this week is set to be a testing time for tech stocks as Nvidia reports earnings on Wednesday. The stock has risen by more than 160% this year alone, which also brings stellar expectations and therefore much scope for disappointment. While AI enthusiasm remains a major factor in propelling the relevant indices, the dual concerns of heady valuations and stretching estimates take on more significance as these markets continue to rise.

Some of the rebound has been due to Federal Reserve comments, which seem to signal that the central bank is on the cusp of relenting and stands ready to cut interest rates in September. By the same token, the Fed will remain data dependent and there are some readings due this week which could inform their next step, such as an update on consumer confidence and the latest revised GDP number for the second quarter.

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Most importantly, the latest inflation release is due on Friday in the form of the Personal Consumption Expenditures report, reportedly the Fed’s preferred measure of prices, which is expected to come in at 2.6%, a sharp contrast to the middle of 2022 when the number exceeded 7%. The following week’s non-farm payrolls employment report will then be the final major hurdle before the Fed’s September decision.

With the slip at the beginning of the month now barely registering, the main indices have continued their rise, with the Dow Jones ahead by 9.4%, the S&P 500 17.8% and the Nasdaq 18% in the year to date.

Asian markets were mixed overnight, with some rare positive news from China in the form of industrial profits, which rose by 4.1% in July compared to the previous year, providing some brief relief to an economy which has been hampered by sluggish consumer demand, high unemployment and a beleaguered property sector. The relief was short-lived however, with the announcement that Canada would be introducing a full tariff on the import of Chinese electric vehicles in line with some other economic regions, and an additional 25% tariff on Chinese aluminium and steel.

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After an extended bank holiday weekend, UK markets opened briskly with the premier index registering some early strength. The fresh round of conflicts in the Middle East had lifted the oil price over the weekend, which fed through to gains for BP (LSE:BP.) and Shell (LSE:SHEL), while the buying interest spilled over to commodities, lifting mining stocks such as Anglo American (LSE:AAL) and Rio Tinto Registered Shares (LSE:RIO).

Two broker downgrades shaved almost 3% from the price of Associated British Foods (LSE:ABF), whose price has risen by 30% over the last year due largely to a resurgent performance from its flagship Primark brand. The FTSE 100 is now ahead by 8.1% so far this year, and less than 1% from its record high.

There were also some more positive developments for the domestic economy, with the British Retail Consortium reporting a fall of 0.3% in shop prices for August. While some of the decline was driven by continuing cost-of-living pressures and some poor weather, falling supplier costs also helped to depress food prices, which helps the Bank of England narrative on containing inflation. The headline figure is expected to rise slightly to 2.75% later this year before dipping below the 2% target early next year. The generally improving economic picture and the perception of economic stability, alongside historically cheap valuations which have prompted some overseas M&A interest, have combined to push the FTSE 250 up by 7.6% in the year to date.