Covering August Market
August was a tumultuous month for stocks during which share prices experienced a “flash crash” before a fast, v-shaped recovery.
Despite the turbulence, major indexes such as the S&P 500, the Nasdaq, and the Euro Stoxx 50 finished the period in positive territory. In a sign that the stock market rally is broadening out, the best-performing sectors for the month were Consumer Staples, Real Estate, and Health Care. Energy and Consumer Discretionary were the worst performers.
The VIX Index (aka the “fear index”)
Early on in August, a combination of factors led to a major spike in market volatility with the VIX Index (aka the “fear index”) experiencing its largest intraday jump ever on the first Monday of the month (some investors have called this “Black Monday”). One driver of the volatility was an unwinding of the Japanese yen “carry trade” (with interest rates at close to zero percent for years in Japan, hedge funds across the world had been borrowing in yen and investing in US dollar-denominated bonds with better yields). When the Bank of Japan unexpectedly increased interest rates to 0.25% in late July — the highest level in 15 years — this trade began to unravel. This resulted in a major fall for Japanese equities (the Nikkei 225 Index fell 12% in a single day) and a lot of uncertainty for market participants.
Another driver of the VIX spike was fears over the US economy, as jobs data published early in August were worse than expected with the unemployment rate hitting its highest rate in three years. Some investors were concerned that the US Federal Reserve had not yet cut interest rates. The news that the legendary investor Warren Buffett had sold around half his Apple stock was another reason that worried investors. This led to some doubts over the near-term outlook for the tech sector.
As a result of these factors, many stocks — especially those in the tech sector — experienced sharp falls in the first week of August.
Nvidia, for example, fell to near $90 — more than 30% below its 2024 high. However, share prices didn’t stay down for long as dip buyers soon emerged. And this led to a powerful rally in the middle of the month, with the S&P 500 and the Nasdaq notching up eight consecutive days of gains. As for the Nikkei 225, it also experienced a major rebound, recovering most of its losses by the end of the month.
Speaking of Nvidia, it posted its earnings for its second quarter late in August. And the numbers were very strong.
For the period, revenue was up 122% year-on-year thanks to surging demand for artificial intelligence (AI) chips (its fourth straight quarter of triple-digit revenue growth). However, despite this strong performance, the stock fell after earnings as investor expectations were very high.
Another chip company that was in the spotlight in August was Intel.
Its share price fell 26% on the day before Black Monday (its worst one-day performance since 1974) after the company posted weak earnings and suspended its dividends. Interestingly, it was reported that Intel — which was at the cutting edge of computer chips in the 1990s and 2000s — had the chance to buy a 15% stake in ChatGPT creator OpenAI in 2018 for $1 billion in cash, but decided against the deal because then-CEO Bob Swan didn’t believe that generative AI models would make it to market in the near future. Given that OpenAI is in talks to raise funding that would value the company at $100 billion, this was clearly a mistake. Late in the month, Intel’s share price rose nearly 10% after the company said that it was considering splitting its product design and manufacturing businesses.
Elsewhere in the chip sector, Taiwan Semiconductor Manufacturing Company (TSMC) reported sales growth of 45% in July on the back of strong chip demand.
TSMC is seen as a bellwether for AI demand as it’s the “go-to” chipmaker for many of the big semiconductor designers. As for the chip manufacturing equipment makers such as ASML and Applied Materials, these stocks started to rebound after weakness in July and early August, but then lost some ground in the second half of the month.
In the M&A space, candy giant Mars announced a deal to buy Pringles maker Kellanova for $36 billion.
This deal — the largest acquisition in 2024 so far — appears to be a bet on consumers continuing to indulge in branded snacks. Recently, many snack food companies have come under pressure due to the rise of GLP-1 weight-loss drugs such as Wegovy and Zepbound. These drugs reduce users’ food cravings and curb their appetite, and demand for them has made Denmark’s Novo Nordisk — the maker of Wegovy — the largest company in Europe by market capitalisation.
Moving away from the “higher-for-longer” theme
At the Fed’s meeting at Jackson Hole, Chair Jerome Powell made it clear that interest rate cuts are coming soon (moving away from the “higher-for-longer” theme). However, he noted that the timing and pace of rate cuts will depend on incoming data, the evolving economic outlook, and the balance of risks. Interest rates in the US have been between 5.25% and 5.50% since July 2023 — the highest level in 22 years — and the consensus forecast is for a 25 basis point cut in September (in the aftermath of Black Monday, market analysts were convinced that the Fed would cut by 50 basis points, but the rebound in the markets has changed the outlook here) with three more cuts this year and nine planned for next year. It’s worth noting that the Fed’s plan to engineer a “soft landing” is still looking plausible. In a sign that the housing market is recovering, sales of new US single-family homes rose to their highest level in more than a year in July as a drop in mortgage rates boosted demand. In terms of bond yields, 10-year Treasury yields ended the month at around 3.9% versus 4.1% at the start of the month and intra-month lows of 3.7%.
In China, shares in Temu owner PDD Holdings fell 28% in a day after the company missed estimates for quarterly revenue and provided downbeat comments in relation to its outlook. This was the biggest one-day fall for PDD since it listed in the US in 2018 and wiped out nearly $55 billion in market cap. China's fragile economy, persistent weakness in the property sector, and high youth unemployment rates have led consumers in China to cut back on purchases recently. This has weighed on the country's online shopping sector and prompted cut-throat competition for market share among e-commerce companies.
In the commodities space, gold continued its strong run, hitting new all-time highs. For the month, it posted a gain of nearly 3.5%. Oil, however, lost a little bit of ground. Late in the month, analysts at Goldman Sachs cut their 2025 forecast for Brent Crude oil to $77 from $82, due in part to expectations of more US supply.
Finally, it was a weak month for cryptoassets.
Early in August — when volatility was elevated — Bitcoin briefly fell below $50,000 (showing again that it is not a strong hedge against uncertainty). It finished the month near $59,000 — down about 9%. Ethereum performed worse, losing about 21% for the month. One driver of the weakness here was reports that governments are planning to sell tokens that have been seized in criminal cases. Currently, the US government holds about 203,000 bitcoins while the Chinese and UK governments hold about 190,000 and 61,000 respectively.
