August 2025 MPS Monthly Commentary

Global stock markets continued their imperious march higher during August, with investors increasingly confident that a combination of; a) easing monetary policy and, b) continuation of the AI narrative that has powered a handful of stocks to stratospheric levels, will more than offset persistent geopolitical and economic concerns.

Importantly for bulls, the near completion of second quarter US corporate results revealed that aggregate earnings expectations have been comfortably exceeded. This should not have come as surprise. The tariff tantrum triggered by President Trump back in early April on the Rose Garden lawn gave blue chip company CFO’s the perfect excuse to materially lower investor expectations for the remainder of 2025. With many of the reciprocal tariffs subsequently softened or reversed, the bar for earnings ‘beats’ this quarter was low.

Market darling Nvidia, the picks and shovels play of the AI story and 8% of the S&P500 index, reported late in the month. $47 billion of revenue in the quarter, representing +56% growth, and earnings per share of $1.05 representing +54% growth on a year-on-year basis were accompanied by soothing tones from CEO Jensen Huang. He described AI infrastructure as entering ‘a new industrial revolution’, and demand for the company’s latest Blackwell chip as ‘extraordinary’. All taken, the sum-of-the-parts was enough to prevent a sharp price move reaction in either direction.

The ongoing AI story has gripped investors to such an extent that seemingly disruptive developments in US domestic affairs and further afield in the G7 were largely ignored. One potential curve ball to prevailing positive sentiment was Chairman Jerome Powell’s speech at the Federal Reserve’s annual economic summit for central bankers in Jackson Hole, Wyoming. Powell, and several staunch colleagues at the Fed, have resisted pressure from Trump to cut interest rates due to concerns that tariffs will feed through to higher consumer price inflation in the US. A low probability risk was Powell emulating General Custer’s last stand.

However, recent weakness in the jobs market put policymakers in a more challenging position and Powell ceded to ongoing pressure, acknowledging that ‘the shifting balance of risks may warrant adjusting our policy stance’. Investors interpreted the remarks as a clear signal that the Fed will resume its rate cutting cycle and money market futures are now pricing in over an 80% chance of a cut at its next meeting in September.

With rate cut(s) now seemingly in the bag, another extraordinary development from the White House, fuelling ongoing concerns over an erosion of Federal Reserve independence. Having already personally attacked ‘too late’ Powell’s credibility and credentials in the public domain on several occasions, the Donald officially announced via Truth Social that he would be firing Fed Governor Lisa Cook ‘effective immediately’, citing accusations of mortgage fraud.

For context, this marks the first time in the Federal Reserve’s 112-year history that a sitting governor has been removed, or in Trump's words, ‘fired’, by a president. At the time of writing, Cook refuses to stand down and has filed a lawsuit against Trump, Cook vs Trump, declaring her dismissal ‘unlawful and void’. Closer to home, the Bank of England is facing the challenge of a deteriorating economic outlook and accelerating inflation. It was revealed that annual consumer price inflation picked up to 3.8% in July due to higher airfares, 30% higher than a year ago, and that food prices rose by 4.9%. The BoE forecasts inflation could reach 4% in the coming months, twice as much as its target rate, which puts further interest rate cuts before the end of the year in doubt.

Meanwhile, winner of the most precarious current G7 financial situation is France. PM Bayrou, unsurprisingly struggling to pass a hardline fiscal reform agenda involving tax rises and cuts to public holidays, declared that a confidence vote be held in early September, risking yet another government collapse. French long-dated government bonds, along with much of the G7, continue to see significant upward pressure on yields.

Against this backdrop, little surprise to see precious metals, led by physical gold and silver, remaining bid.

Portfolio Positioning

In the short-term, the Nvidia earnings call along with the expansion of gargantuan capital expenditure programmes by the largest mega cap companies (e.g. Microsoft, Amazon, and Alphabet) were enough for the market to give the AI story the continued benefit of the doubt. To give a sense of the extraordinary level of index concentration prevalent in today’s American markets, fully 80% of the return enjoyed by the S&P500 index since the April lows has been powered by just nine companies (the Magnificent 7 (comprising Apple, Alphabet, Google, Meta, Microsoft, Nvidia, and Tesla), plus Broadcom and Oracle.

In the long-term, the answer to the question of whether these companies can effectively monetise their capex investment programme is likely to determine the winners and losers of the next market cycle. We remain sceptical.

TEAM’s equity exposure continues to exhibit a balance between US and ex-US markets, with an increasing tilt to the latter. Chinese equities have quietly broken out to decade-plus highs in price terms, reflecting increasing domestic investor confidence in the government’s economic stabilisation programme. Wildly steep valuation discounts to Magnificent 7 valuations and strong earnings results from China’s own technology heavyweights are additional positive factors.

Within fixed income, our preference in the space remains high quality investment grade corporate credits and financial hybrid bonds issued by well capitalised European banks and insurance companies. We acknowledge, and recognise, that credit spreads (the difference in yield between government bonds and corporate bonds with the same maturity) are tight, but we would argue that this reflects the increasing attractiveness of well-run companies relative to government-issued paper.

Physical gold and silver enjoyed strong absolute performance following a multi-month consolidation, but it was the precious metal mining sector stocks that outperformed sharply. We still see significant upside potential at current spot prices, with selective, high quality, companies delivering abundant cash flow generation, giving scope for share buybacks and/or special dividends through this bull market cycle.