The Federal Reserve did not meet in August, but monetary policy still dominated the month. Yields on the longest-dated Treasurys climbed to levels not seen in decades, driven by concerns about the size of the national debt, inflation that remains above target, and a Fed that now deliberately offers less guidance than markets are accustomed to. In a surprise move, the Treasury Department announced it would sharply expand its buybacks of long-dated bonds to steady the market. At the same time, the economic data handed the Fed a genuine dilemma. During a time when corporate profits continue to increase, the monthly jobs report showed the economy unexpectedly shed jobs, with prior months revised meaningfully lower, the clearest sign yet that hiring has stalled. Markets pared back expectations for a September hike after the jobs report but still lean toward tightening over the coming year, and Chair Warsh’s first Jackson Hole keynote at month’s end was watched closely for any signal.
The theme we outlined last month continued to play out. Semiconductor and AI-related stocks sold off through much of August before a strong report from the sector’s bellwether, Nvidia sparked a rebound in the final week. What stands out is that the selling was not caused by weak results. Earnings remained strong and the largest technology companies continued to increase their AI spending. The market is simply no longer rewarding the buildout for its own sake; it is demanding evidence that the enormous sums being spent will earn a return. Notably, some of the money leaving long-dated government bonds found its way into alternatives, with crypto staging its sharpest rally in years and gold reaching multi-month highs. We continue to believe the most durable winners of the AI era may be the businesses that use these tools to improve margins and productivity, not just the companies supplying the infrastructure, and that dispersion remains the lens through which we manage equity exposure.
Through all of it, the broad market spent much of the month near its all-time highs, supported by an earnings season that came in stronger than expected. Our preference for value over growth continued to serve clients well, with value on pace for a strong year of relative performance. As we noted last month, a gap that wide eventually becomes its own argument for discipline, and we continue to evaluate when it makes sense to lean back toward growth. In fixed income, the volatility at the long end of the curve reinforces our preference for being thoughtful about duration rather than reaching for yield.
Please reach out any time and we hope that you enjoy the remainder of your summer!
Information in this commentary is gleaned from third-party sources, and while believed to be reliable, is not independently verified. This content is not intended to be tax, legal, investment, or fiduciary advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The strategies and/or investments discussed in this material may not be suitable for all investors. Bernardo Wealth Planning recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial advisor. Past performance does not guarantee future results.