What happened this month
Financial markets rose in August, with most major equity markets posting positive returns, supported by continued strength in corporate earnings. Technology stocks were among the strongest performers, as renewed enthusiasm for artificial intelligence (AI) supported the sector.
Bond markets were a little more volatile, with a growing focus on the size of US government debt and the implications for future borrowing costs. These concerns saw long-dated US government bond yields trade to multi-year highs.
In this update we look at some key drivers of August’s market performance.
AI leaders drive technology sector rebound
Sentiment in August was supported by the ongoing strength among US corporate earnings. After retreating in July, the US tech sector was one of the strongest-performing areas of the market with the Nasdaq 100 Index rising 4.2%. Part of the sector's strength was driven by better-than-expected earnings results from AI-focused companies, such as Nvidia and Palantir.
Nvidia reported second-quarter revenue of US$96.2 billion, but it was the company's forward guidance that most impressed investors. Management forecast revenue growth of around 70% for fiscal 2028, significantly exceeding market expectations.
Palantir, whose software helps organisations use AI to analyse data, also delivered a strong result. The company reported a 93% increase in revenue from its AI sovereignty business, reflecting growing demand from governments and businesses seeking greater control over AI data security.
US government debt surpasses $40 trillion
In August, US government debt surpassed US$40 trillion, drawing increased attention and contributing to periods of volatility in bond markets. Government debt has roughly doubled over the past decade as government spending has consistently outpaced tax revenues. The cost of servicing this debt has also risen sharply, with annual interest payments now exceeding national defence spending and ranking as the second-largest item in the US federal budget, behind only Social Security.
Against this backdrop of rising debt levels and higher long-term interest rates, the US Treasury announced an expansion of its long-dated bond buyback operations, raising the maximum purchase size. The initiative aims to ease upward pressure on longer-term bond yields, which influence borrowing costs across the economy, including mortgage rates and other consumer lending.
New Zealand: unemployment rises and inflation concerns see the RBNZ lift interest rates
The NZX 50 Index rose 1.6% in August, marking its fourth consecutive monthly gain and lifting the benchmark to a record high. At a company level, Fisher & Paykel Healthcare was among the standout performers, with its share price rising over 9% after the company lifted its full-year earnings and profit guidance.
Despite the strength in equity markets, the domestic economic backdrop remained weak. Unemployment increased to 5.6%, its highest level in more than a decade, while consumer spending data pointed to ongoing pressure on household budgets.
In early September, the Reserve Bank of New Zealand (RBNZ) lifted the Official Cash Rate (OCR) by 25 basis points, in response to elevated inflation, which remains above the central bank’s target range.
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Past performance does not indicate future performance. The actual performance realised by any given investor will depend on many things, is not guaranteed, and may be negative as well as positive.
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