August Observations
Broadening the Rally
U.S. equities rose in August, but leadership shifted from tech to smaller-cap and cyclical stocks. The Russell 2000 (+7.1%) led the way, while the S&P 500 (+2.0%) and Nasdaq Composite (+1.6%) posted more modest gains. Q2 earnings supported sentiment, with S&P 500 earnings per share up approximately 12% year-over-year and a broad set of companies beating expectations. Sector rotation was evident as Materials and Healthcare topped the leaderboard, while Technology and the “Mag 7” lagged amid growing skepticism about lofty AI-driven valuations. Developed markets posted modest gains, with Europe lagging U.S. peers on weak earnings and political headwinds, while Japan outperformed on strong cyclical leadership and macro tailwinds. Emerging markets fared better, led by China’s sharp liquidity-driven rebound and strength in Asia broadly, though Korea was a notable laggard. Yields continued to edge higher, weighing on bonds, as markets digested fiscal and geopolitical risks alongside evolving central bank expectations.
Economic Data: Mixed Signals Continue
Labor market weakness dominated headlines in August, with July payrolls sharply disappointing and prior months revised lower. Still, growth concerns eased as Q2 GDP was revised higher to 3.3% and PMIs beat forecasts, led by manufacturing. Inflation stayed in focus as a sharp jump in producer and import prices reignited tariff-driven worries by month-end.
Fed Strikes Dovish Tone at Jackson Hole
At the Fed’s annual Jackson Hole meeting, Fed Chair Jerome Powell noted that both labor market supply and demand have softened. While Powell stated that the labor market “appears to be in balance”, he cautioned that downside risks to employment were rising. With inflation risks tilted up and jobs risks tilted down, Powell emphasized the challenging situation, but indicated their restrictive policy may no longer be warranted, keeping rate cuts in September firmly on the table.
Asset Manager Commentary
Private Capital Manager
Over the first half of the year, the contribution to GDP growth from data center investments was roughly the same as the contribution from consumer spending. The contribution from consumer spending has been decreasing, and the contribution from data center construction has been increasing.
Real Estate Manager
REITs have improved in Q3 after a mixed first half, with defensives leading early and growth themes later. This manager’s outlook favors a slowdown scenario (40% probability), where REITs could outperform equities, though recession and stagflation (25% each) remain notable risks.
Infrastructure Manager
Global nuclear power currently supplies about 9% of electricity, with the U.S. at nearly 18%, and the existing fleet of ~440 reactors is projected to grow to ~500 by 2030, alongside 400 more planned. Looking ahead, small modular reactors (SMRs) represent the most promising innovation: with smaller, flexible designs (20–300 MW), they can open new markets, reduce construction risks, and serve high-demand sectors, though they still face cost and commercialization challenges.
Chart of the Month
NVIDIA’s recent earnings report confirmed that spending on artificial intelligence is alive and well, though estimates for future growth were tempered by uncertainty on access to China. Concentration of revenue sources remains significant, with the company noting 39% of last quarter’s revenue came from two unnamed customers.
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