Shifting Sentiment and Pivotal Policy Signals in August 2025
The indication of a possible interest rate cut in September benefitted equities, but trade policy remained a dominant theme, with ongoing tariff actions reverberating through global supply chains.
Introduction & Macro Overview
August 2025 was a month of shifting sentiment and pivotal policy signals. Global markets navigated a complex landscape of monetary policy expectations, ongoing trade tensions, and evolving economic data. The highlight was a dovish turn from the U.S. Federal Reserve at the Jackson Hole Symposium, where Chair Jerome Powell signaled a possible interest rate cut in September, citing a weakening jobs market and a shifting balance of risks. This dovish tilt sent equities higher, pushed Treasury yields and the dollar lower, and lifted gold prices as investors anticipated a more accommodative policy stance. Despite these positive moves, the question around Fed independence was also front and centre with Trump firing Fed Governor Lisa Cook a decision that is landing up in the courts.
Trade policy remained a dominant theme. The Trump administration continued to wield tariffs as a tool of both economic and foreign policy, with new and expanded levies announced or hinted at across sectors including semiconductors, steel, pharmaceuticals, and consumer goods. Notably, the U.S. government finalised a deal to take a 10% equity stake in Intel, marking an extraordinary intervention in the semiconductor industry and underscoring the strategic importance of domestic chip manufacturing. Meanwhile, the administration’s ongoing tariff actions – particularly those targeting China, India, and Russia – continued to reverberate through global supply chains, raising costs and uncertainty for businesses and consumers alike.
Despite these headwinds, inflation data remained relatively contained. The U.S. consumer price index (CPI) rose 0.2% in July, with annual CPI at 2.8% and core CPI at 3.0%. Producer prices also edged higher, but the overall inflation backdrop allowed the Fed to maintain a cautious, data-dependent approach. Labour market data was mixed: job creation slowed, but unemployment remained stable, and wage growth was modest. The market’s focus shifted to upcoming employment and inflation reports, which will be pivotal for the Fed’s next move.
Through all the macro noise August saw renewed optimism in equity markets, particularly following the Fed’s dovish signals. The S&P 500 and Nasdaq both notched record highs, buoyed by strong performance in technology and AI-related stocks. Nvidia’s earnings became a focal point for the market, with investors looking for confirmation that the AI-driven rally could be sustained. While some volatility emerged around earnings and sector rotation, the broader trend remained positive, with risk assets benefiting from expectations of lower rates.
South Africa’s macroeconomic environment was marked by renewed external pressures and subdued domestic growth. The South African rand depreciated by 1.5% during the month, reversing gains from June, as global uncertainty and a stronger U.S. dollar weighed on emerging market currencies. Investor sentiment was further dampened by the announcement that the United States would implement a 30% tariff on key South African exports – including autos, steel, and wine – starting in August, which raised concerns about export competitiveness and future trade flows. In response to these headwinds, the South African Reserve Bank revised its 2025 GDP growth forecast downward to 1% from 1.2%. Broader challenges persisted, including low export volumes, subdued global demand, and elevated interest rates, all of which continued to constrain economic activity.
The macro environment faces an interesting road ahead with significant external pressure on the Fed to cut rates while inflation, albeit lower, still exists in the system and uncertainty around tariffs are adding to central bank challenges. We are watching this landscape very closely and ensuring that portfolios are appropriately positioned for the bullish upside while remaining cognizant of the downside risks we face.
Asset Allocation
Our equity asset allocation benefited from ongoing strength in AI-driven tech stocks, while structured notes and fixed income continued to provide a stable yield underpin, helping to manage portfolio volatility. During the month the Team debated various market scenarios and despite the positive momentum, we remain mindful of several risks on the horizon, including the potential for further trade disruptions, political instability in Europe, and the evolving stance of central banks. Our current allocation reflects a balanced approach, aiming to capture upside while protecting against downside shocks and for this reason we remain unchanged.
Market Performance
August saw a good month for markets especially the JSE. The S&P500 was up 1.91% for the month, while the MSCI World was up 2.5%. The JSE was strong producing 3.37% for August. As per the below chart the YTD performance for the S&P500 is up 9.8% (in USD) and the MSCI World is up 12.7% (in USD). Locally the JSE currently has a YTD performance of 21.1% (in ZAR).
Fixed Income
Fixed income markets in August were shaped by the interplay of inflation signals, central bank positioning, and geopolitical developments. US Treasury yields fluctuated, with longer-dated bonds responding to inflation data and shifting expectations for Fed policy. The yield curve remained relatively flat, reflecting uncertainty about the timing and magnitude of future rate cuts.
In South Africa, the Reserve Bank maintained a cautious stance, holding rates steady after July’s modest cut. Inflation remained well-contained, supported by a stable rand and easing fuel prices. Local bonds benefited from this benign backdrop, with yields easing slightly as investors priced in a more accommodative policy outlook. However, ongoing concerns about logistics constraints and global trade tensions warrant continued vigilance.
Bond markets continue to monitor the global landscape and Fed independence with caution. The Fed’s dovish pivot at Jackson Hole provided support for risk assets and helped anchor short-term yields, but concerns about longer-term inflation and debt supply kept upward pressure on the back end of the curve. U.S. Treasury auctions saw mixed demand, with some longer-dated issues drawing tepid interest amid uncertainty over the policy outlook. The Fed largely determines shorter term rates and hence the pressure to cut and market expectations in this regard will drive the front end of the yield curve but the Fed has very limited influence over the longer end through their rate policy. This is where the market focuses on a multitude of factors and despite the administrations best efforts will be beyond simply policy reach. This is outlined on the below chart.
Equities
Equity markets demonstrated resilience in August. Major indices such as the Nasdaq and S&P 500 posted gains, supported by robust corporate earnings, particularly among technology leaders. Alphabet, Microsoft, and Meta continued to benefit from AI investments and strong cloud revenue, while Apple’s performance was steady despite ongoing supply chain challenges. Consumer and financial stocks were mixed, with some companies citing margin pressures from rising input costs and tariffs.
Several high-profile companies played a pivotal role in shaping equity market sentiment. Nvidia continued to anchor the AI-driven rally, delivering another quarter of explosive revenue growth – over 50% year-on-year – while remaining at the center of U.S.-China technology policy discussions and supply chain adjustments. Walmart and Amazon both reported robust sales, with Walmart’s results highlighting how tariff pressures are influencing U.S. consumer behavior and driving demand for value-oriented offerings, while Amazon’s continued expansion in digital grocery and same-day delivery reinforced its leadership in e-commerce. Caterpillar issued a cautious outlook, warning that tariffs could cost the company up to $1.5 billion in 2025, with profit margins under pressure from higher input costs and supply chain disruptions. Meanwhile, Intel was thrust into the spotlight as the U.S. government finalized a deal to take a 10% equity stake in the company, providing a strategic capital injection to support domestic semiconductor manufacturing, even as Intel continued to face operational challenges and delays in its next-generation chip processes.
Conclusion
August 2025 reinforced the importance of a balanced, risk-aware approach to portfolio management. While markets continued to climb, supported by strong earnings and resilient consumer demand, the landscape remains fraught with uncertainty – from trade policy and central bank independence to geopolitical flashpoints and sector-specific risks. Our asset allocation remains positioned to capture growth while managing volatility, and we maintain a cautiously optimistic outlook as we head into the final months of the year. Please reach out if you would like to discuss any aspect of your portfolio or the current investment environment in more detail.