August was a quiet month in the equity markets as a result of the holiday season and light newsflow. The best performing markets were those with higher risk as investors gravitated towards those in a bid to achieve higher returns. The broad US equity index, the S&P 500 gained just 0.31% with the NASDAQ Composite, the index of technology stocks, gaining 1.3%. Some investors remain on the sidelines due to excessive valuations of certain parts of the market, notably in the technology sector. MSCI Emerging Markets rose 2.0% as confidence continued to improve. Progress was more limited in the domestic stocks with the UK top 100 companies adding 1.63%. European and Japanese stocks declined with the Euro Stoxx Index down 0.5% and the Nikkei 225 down 1.34% as investors took profits following a decent run.
The bond market performed better, largely as a result of the latest statement from the US Federal Reserve (the Fed), which dampened long-term interest rate expectations. US and UK yields fell broadly across the curve. Gold also benefited from this trend, moving close to a one year high. Crude oil declined as investors questioned just how effective the OPEC cuts would prove in the long run. The persistent weakness is likely to lead to a lowering of future inflation expectations.
The VIX, a measure of expected short term volatility, was broadly flat on the month, despite spiking at one stage to reach over 16. The index is close to historic lows, indicating investor complacency.