August was a good month for equities, helped by a more stable bond market. The market stabilised after the fall in the US Treasury 10 Year yield from April's 2021 peak of 1.75 per cent to 1.2 per cent in early August. There is still a vast gulf between those who believe the current uptick in inflation is transitory and those who worry that it's only just the start of something more sinister. The spread of the COVID delta variant seems to have suppressed the rate of global growth over the summer. The optimists believe we are through the worst, and growth will accelerate into Q4. The pessimists, however, think that growth will continue to disappoint and that deflation will rear its ugly head again. Worse still, some predict a return to the stagflation, low growth and inflation, of the 1970s.
Thus far, the Chairman of the Federal Reserve seems to be playing his cards well. His Jackson Hole speech at the end of August managed to satisfy both camps in the short term. He opened the way for tapering the Fed's monthly quantitative easing whilst convincing the markets that he would not take risks with growth.
Over the month, technology stocks performed well, with the NASDAQ 100 (up 4.2 per cent) achieving new highs. The S&P 500 was up 2.9 per cent, extending its gain this year to 20.4 per cent. The Nikkei 225 was up 4.3 per cent but remains one of the worse performing major indices this year, up just 3.7 per cent. The German DAX was up 1.9 per cent, the French CAC 1.0 per cent and Italian MIB 3.2 per cent. Smaller and mid-cap companies led the way in the UK, helped by a record number of takeovers. The FTSE 250 was up 5.0 per cent, FTSE Small Cap 3.6 per cent and AIM All-Share 3.4 per cent. The FTSE 100 gained just 1.2 per cent, with its exposure to mining stocks proving a drag.