Weeky Market Review

Global stock markets struggle to make headway this week as premium US valuations and several persistent risk factors, namely political instability across G7 countries and the spectre of stagflation (an unpalatable combination of sticky inflation, weak economic growth, and high unemployment) loomed further into view.

Add to this the seasonal weakness of September, which has historically been the poorest month of the year in terms of market returns, and investors' concerns are arguably justified. Going back to the 70’s the S&P 500 has typically fallen by 1% on average. Bulls will hope that the mammoth share buyback programme being undertaken by mega cap tech companies and the big banks, estimated at over one trillion dollars so far in 2025, can continue to support prices and sentiment.

Last Friday’s American jobs report for August gave us the first clue that Chairman Jerome Powell, labelled ‘too late’, by President Trump, may well be living up to his nickname. Just 22,000 new jobs were added during the month, whilst the trend of downward revisions to previous data releases continued for July’s data. All in all, a concerning picture.

A weakening labour market would ordinarily mean the Fed, whose dual mandate includes the pursuit of maximum employment, is supposed to cut rates to stimulate growth and activity. However, inflation is still not under control and the CPI print ahead of the Fed meeting, although unlikely to alter what is now considered to be an 88% chance of a cut, will still be of concern. A headache for policy makers, and internal tension between Fed officials who want to press for more aggressive cuts and those worried about the lagged impact of tariff hikes, is building.

Growing concerns regarding the direction of fiscal and monetary policy in leading economies is reshaping what investors now consider to be safe investments. As equity valuations begin to look unnervingly toppy, government bonds tend to be the haven asset investors flock to, a theme that dominated portfolio construction from the late 1990’s to the onset of the COVID pandemic.

However, the so-called bond vigilantes, bond market investors disgruntled by growing deficits in leading G7 economies, are demanding a higher yield for the increasing level of risk that current government balance sheets reflect. In the United States, the yield on 30-year Treasury surpassed 5% on an event not seen since July. The United Kingdom’s 30-year bond yields climbed to their highest level since Blair/Brown era, while France’s debt touched levels last observed in the 2008 financial crash.

Political uncertainty across developed markets shows no sign of slowing. France faces further turmoil after PM François Bayrou was ousted by bitter rivals in a crushing defeat in a confidence vote on Monday. France will now need to find its fifth Prime Minister in just 2 years as they struggle to shrink the highest budget deficit in the eurozone.

Japan, the world’s fourth largest economy, also faced a fresh leadership blow as PM Shigeru Ishiba stepped down amidst the loss of parliamentary majority last year and a failure to secure a trade deal with the US that would have protected its leading auto sector.

Closer to home in the UK, the government’s struggle continues with Angela Rayner stepping down as deputy PM following an investigation into her tax affairs prompting Kier Starmer to make sweeping changes to his cabinet. Rachel Reeves survives as chancellor but has little to play with to balance the books with unpopular tax rises the only card left to play. The chancellor continues to dismiss growing noise around a ‘doom loop’ that has many worried about a1976 style bail out from the IMF.

Investors are now turning to precious metals as a hedge against faltering markets and political instability. Gold has been the standout performer hitting a fresh new all-time high of $3,650 The metal is a store of value typically shielded from fiscal and political interference. Silver too has hit 14-year highs offering further diversification given the metals demand in industry.

In corporate news, tech continues to dominate the headlines. Shares in Alphabet jumped 9% on Wednesday after a judge reversed a court ruling from last year which deemed that its Google search engine had created an illegal monopoly. The ruling means that Google won’t be forced to sell its Chrome browser and instead handed down a more limited punishment, including a requirement to share search data with competitors, much to the delight of shareholders. It was also good news for Apple who will continue to receive an estimated $20 billion per year for making Google the default search option in its Safari browser.

And could Elon Musk join the trillion club himself? The Telsa board has rolled out a fresh package it hopes will keep Musk ‘motivated and focussed on delivering for the company’ The gargantuan package would see some hefty performance KPIs including doubling the current market cap to $2 trillion with a final target of $8.5 trillion in 10 years!

(Cover Image Source: Kelly Sikkema)