Market Review - August 2022
Source: Zephyr Style Advisor
August posed challenges for equity markets with US equities (-4.1%) and international developed equities (-4.7%) both in the negative. Emerging markets equities outperformed developed markets and gained (0.5%) led by India and Brazil recovering from July lows. While equity markets began strong for the month, sentiment reversed as investors reacted to Fed Chair Jerome Powell’s remarks at the Jackson Hole symposium where a continued hawkish stance of ongoing interest rate tightening to combat inflation was conveyed¹. With worries of aggressive rate hikes potentially pushing markets into recession, US equities suffered its worst August in seven years².
Within S&P 500 sectors, only two posted positive returns for the month: energy (2.8%) and utilities (0.5%). Despite falling crude oil prices during the month, ongoing supply concerns for natural gas led to gains in the energy sector. Technology was the worst performer (-6.1%) with weakness showing up from chipmakers2 and headwinds from potential higher interest rates. Moving to equity styles and sizes, value fared better than growth for mid and large caps, but small caps reversed this trend with growth outperforming value.
Bonds offered little refuge amid the market volatility as interest rates rose. Like equities, emerging markets bonds fared the best (-0.5%) while US bonds struggled (-2.8%). International developed bonds were the worst performer hurt by a strong dollar and rising interest rates (-5.0%). Despite the volatility in equity markets, lower quality bonds such as high yield also fared better (-2.3%). Short-term treasury bonds offered the only positive return on the month (0.1%) as investors sought safety from market volatility and interest rate risk.
Broad commodities were flat (0.1%) for the month. Energy (natural gas) and grains helped while industrial metals and livestock hurt. Precious metals saw the largest drops as gold continued its slump (-2.9%) hurt by a strong dollar. US REITs saw declines exceeding broad equity markets (-5.9%). The US Dollar gained (2.9%), as expectations of the Fed’s ongoing aggressive rate hikes continue, and investors retreat to safety over concerns of a recession.
Within a balanced portfolio, allocations to gold and commodities helped while US REITs and global bonds hurt.
Source: Zephyr Style Advisor
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