Monthly Market Snapshot: August 2022

Brett Hinds, Senior Client Services Writer
Ryan Greenleaf, CFA, Product Reporting Lead
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Global equities (-2.9%) lost ground in August, ending the month with a 14.2% loss year to date. Risk-off sentiment was driven by high inflation, rising interest rates, and growing signs of a global economic slowdown. US Federal Reserve (Fed) Chair Jerome Powell reiterated that the central bank would continue raising interest rates until it was confident that inflation was under control, acknowledging the unfavorable impacts the policy will have on consumers and businesses. Powell’s comments were met negatively by some investors who had hoped the bank would slow its pace of rate hikes to shelter the economy from recession. In sharp contrast, the People’s Bank of China (PBOC) cut interest rates in an attempt to revive the country’s sputtering economy. China’s strict COVID containment policies and property market disarray weakened consumer, producer, and investment activity. Inflation remained elevated globally, notably within the UK, where prices jumped 10.1% year over year in July, the largest increase in 40 years. European natural gas prices continued to skyrocket, prompting energy ministers to call an emergency meeting to discuss solutions to the continent’s energy crisis. Tokyo’s core CPI, a leading indicator of Japan’s price trends, rose 2.6% in August from a year earlier, the sharpest increase since 1992. Droughts in some of the world’s biggest economies strained agriculture, electricity generation, manufacturing, and tourism, compounding pressure on prices and supply chains. Oil declined for the third straight month amid slowing economic growth.

US equities (-4.1%) ended lower after a strong rally earlier in the month reversed course amid concerns about aggressive interest-rate hikes, the looming ramp-up in the Fed’s balance-sheet reduction, and anxiety about future corporate earnings. Growth stocks lagged their value counterparts, although both groups declined. Markets took some comfort from surprisingly soft inflation data; the headline Consumer Price Index (CPI) grew 8.5% year over year in July, down from 9.1% in June, while the Producer Price Index (PPI) fell 0.5% — the first decline since the onset of the pandemic. Even as the outlook for US economic growth appeared increasingly murky, Fed Chair Jerome Powell signaled that the Fed is likely to continue raising interest rates and keep them elevated for longer until there is clear and convincing evidence that price pressures are abating.

President Joe Biden signed into law legislation to lower prescription drug prices, boost renewable energy, and impose new taxes on corporations, giving Democrats hope that the law will help their party retain congressional majorities in the November elections. Data from FactSet showed the blended second-quarter earnings growth rate for companies in the S&P 500 Index was 6.3% — the lowest since the fourth quarter of 2020 — but better than the forecast of 3.9%. For the third quarter, analysts lowered their earnings-per-share estimate by 5.4% relative to their estimates in the second quarter.

Economic data released in August indicated that the US economy was largely resilient against a backdrop of high inflation and slowing growth. Broad-based strength in the labor market tempered recession worries but bolstered the Fed’s resolve to aggressively tighten monetary policy to curtail inflation. In July, job growth was more than double consensus estimates as nonfarm payrolls soared by 528,000 — the largest gain in five months — while the number of jobs added in June was revised upward to 398,000. The unemployment rate dropped to a five-decade low of 3.5%, initial jobless claims trended lower, and average hourly earnings grew at the fastest pace since March, accelerating 0.5% (5.2% annually). Decades-high inflation constrained consumer outlays on goods and services, although falling gas prices and strong wage growth supported spending and cushioned the impact of high prices. US retail sales were flat in July following a 0.8% increase in June, while inflation-adjusted consumer spending advanced only 0.2% after a 0.1% gain in June. The Conference Board’s Consumer Confidence Index advanced 7.9 points, to 103.2 in August, reflecting more favorable views of current conditions, a better outlook for household finances and business conditions, and a stronger appetite for purchasing big-ticket items and vacations. Rising mortgage rates and waning demand caused further deterioration in the housing market in July, as construction tumbled and pending, new-, and existing-home sales continued to trend downward.

The Institute of Supply Management (ISM) Manufacturing Index held at 52.8 in August, matching the slowest pace of growth in the sector for over two years. Manufacturers remained broadly optimistic about demand despite unease about the slowing economy, while input costs dropped sharply, and supply-chain performance improved slightly. Firmer business activity and orders unexpectedly lifted the ISM Services Index to 56.7 in July, from 55.3 in June, easing concerns about a broader US economic slowdown. However, preliminary data for August indicated that business activity in the services sector was markedly softer as demand weakened amid higher inflation and tighter financial conditions. Small-business sentiment improved slightly in July after hitting a nine-year low in June, although businesses continued to suffer from historically high inflation, supply disruptions, and labor shortages. 

Nine of the 11 sectors in the S&P 500 Index (-4.1%) posted negative results. Information technology (-6.1%) was the worst-performing sector, led lower by semiconductors & semiconductor equipment (-10.8%) and software (-7.1%). Health care (-5.8%) was another notable underperformer, weighed down by the life sciences tools & services (-9.3%) and pharmaceuticals (-8.2%) groups. Real estate (-5.6%) lagged as REITs fell on continued housing market pressures. Despite the decline in crude oil and gasoline prices, energy (+2.8%) gained, driven by exploration & production companies.

European equities (-3.9%) dropped as fears of recession intensified amid soaring inflation, rapidly tightening financial conditions, and fears about the region’s energy security. Europe’s energy crisis deepened after natural gas prices hit a series of record highs following Russia’s announcement of a three-day shutdown of the Nord Stream 1 pipeline at the end of August and uncertainty about Russian gas flows during the critical winter months. Furthermore, Europe’s electricity production was curtailed by abnormally hot temperatures and drought, which pushed power prices to an all-time high, strained the region’s agriculture sector, and impeded the shipment of goods via the region’s waterways. The European Commission announced that it is preparing emergency measures to curb the price of electricity as well as drawing up structural reforms to the power market. Higher energy prices drove annual headline inflation in the eurozone to 9.1% in July, increasing pressure on the European Central Bank (ECB) to raise interest rates more aggressively in September.

Europe’s manufacturing sector continued to contract in August as companies were forced to cut production due to falling sales and rising inventories. The manufacturing Purchasing Managers’ Index (PMI) declined to 49.6, and forward-looking indicators suggested that the downturn could intensify in the coming months. On a brighter note, inflation pressures eased as input costs and output prices decelerated. Preliminary composite PMI data for August showed that business activity across the eurozone declined for the second straight month, signaling that a recession in the second half of 2022 is increasingly likely. The services sector remained in expansionary territory, although the pace of growth continued to trend lower as the higher cost of living sapped demand. Eurozone economic sentiment waned in August; signs of stabilizing consumer confidence were not enough to offset weaker services confidence and a steeper drop in industry confidence, which fell for the sixth consecutive month amid lower orders and rising inventories.

In the UK (-1.3%), Liz Truss was the frontrunner to become the country’s new prime minister. Despite forecasts of recession later this year and a more dire outlook for economic growth, the Bank of England (BOE) hiked interest rates by 50 basis points (bps) — the largest increase in more than 25 years. Spiraling food and energy costs drove annual inflation to a 40-year high of 10.1% in July, exacerbating the cost-of-living crisis and amplifying criticism of the BOE. In Germany (-5.1%), economists slashed forecasts for economic growth as the country faced a plethora of shocks, including soaring inflation, persistent supply-chain disruptions, weaker global demand, and surging energy costs that have severely impacted the manufacturing sector. Germany’s energy regulator warned that the country must cut its gas use by 20% to avoid winter rationing. The ZEW Institute’s gauge of investor expectations showed that investor pessimism about the economy reached the highest level since the eurozone debt crisis. In Italy (-3.3%), markets were unnerved by the country’s vulnerability to rising gas prices and the ECB’s decision to unwind its stimulus programs. Political uncertainty increased after a right-wing bloc emerged as the frontrunner to win a broad majority in both houses of parliament in September’s snap elections.

Pacific Basin
Pacific Basin equities (+0.5%) advanced, led by Japan (+1.1%). Japan’s economy was resilient despite headwinds from a resurgence in COVID, weakness in the yen, and slower global economic growth. The yen fell to a 24-year low against the dollar, pushing up the prices of imported fuel and raw materials and threatening corporate profits and consumption at a time when Japan’s economy is still recovering from a pandemic-induced slump. Tokyo’s core CPI accelerated 2.6% year over year in August, slightly above estimates of 2.5%, and ahead of the Bank of Japan’s (BOJ’s) 2% target for the fifth straight month. Prices gains broadened beyond food and energy, highlighting the rising cost of living that could dampen household spending. Nevertheless, retail sales climbed for the fifth straight month, rising 2.4% year over year in July and signaling that consumer spending remains resilient even as the number of COVID cases skyrocketed. The unemployment rate held steady at 2.6% in July. Industrial production increased 1.0% in July following a 9.2% increase in June; the result was much better than consensus expectations of a 0.5% decline, offering hope that Japan’s recovery could be stronger than anticipated in the third quarter. The au Jibun Bank Japan Manufacturing PMI remained in expansionary territory but slipped to an 11-month low of 51.5 in August amid slowing global economic growth.

Australia (+0.7%) ended higher. The central bank continued to tighten monetary policy at the fastest pace on record, raising interest rates by 50 bps and lifting the cash rate to 1.85%. The bank signaled more rate hikes ahead but hinted that it may slow the pace of increases. The economy unexpectedly shed 40,900 jobs in July, below expectations of a 25,000 gain, giving the central bank greater flexibility in its tightening cycle. The unemployment rate fell to a 48-year low of 3.4%, with a decline in the participation rate reflecting floods along the nation’s east coast, a renewed COVID outbreak, and school holidays. Consumer spending was resilient despite the cost-of-living strains; retail sales advanced 1.3% in July, well above estimates of 0.3%. However, rising interest rates and high inflation drove consumer sentiment down to 81.2 in August, marking the ninth consecutive monthly drop. 

Singapore (-1.0%) declined for the fourth time in five months. Headline inflation rose at the fastest pace in more than 13 years, surging 7.0% year over year amid a rapid increase in food costs and a broadening of price pressures. This bolstered prospects that the central bank would tighten monetary policy in September. Second-quarter GDP grew 4.4% year over year, slower than the government’s forecast of 4.8%. The government subsequently lowered its 2022 GDP growth projections, citing global economic headwinds from high inflation and the war in Ukraine. Industrial production growth was much weaker than expected, declining for the second straight month as biomedical and electronics manufacturing output fell.

Emerging Markets
Emerging markets (EM) equities (+1.2%) ended higher. Latin America was the top performer, followed by Asia and Europe, the Middle East, and Africa (EMEA). 

Latin American equities (+2.2%) advanced, with Brazil (+6.2%) leading the region higher. President Jair Bolsonaro introduced election-friendly policies aimed at subsidizing low-income households and supporting legislation to cap state-level taxes on essential services. The Brazilian central bank increased interest rates by 50 bps, to 13.75%, up sharply from a low of 2.0% in 2020. However, the bank’s future guidance was more dovish than expected, signaling that its aggressive policy-tightening cycle may be nearing a peak. Chile (1.8%) advanced despite slowing domestic demand amid tighter financial conditions and uncertainty about whether voters will approve a draft of a new constitution. Mexico (-6.1%) fell sharply as consumer prices rose at a faster-than-expected pace in August, reinforcing expectations that the central bank will need to raise rates again in September.

Asian equities (+1.3%) finished higher. In India (+4.4%), below-average rainfall hindered rice production and ignited negotiations to curb exports of broken rice to support domestic consumption, which could have far-reaching implications for food security and inflation in many countries that rely on the staple. India’s trade deficit ballooned to a record US$31.02 billion in July because of high commodity prices and a weakening rupee. China (+0.6%) edged higher despite anxiety about the health of the economy, renewed COVID restrictions in some cities, and a worsening outlook for the property market. The manufacturing sector contracted in August, and several key activity indicators showed that economic growth had slowed, prompting more downgrades to GDP forecasts. Government authorities increased policy support, while the PBOC unexpectedly lowered two key interest rates, although there were concerns that these measures would be insufficient to counter the property market slump and the drag from COVID lockdowns. South Korea (-0.5%) and Taiwan (+0.4%) generated modest moves. Numerous US lawmakers, including US House Speaker Nancy Pelosi, visited Taiwan in August in support of the government and democracy, enraging China’s government and driving tensions between the US and China to their highest in years. In Thailand (+4.7%), monthly foreign tourist visits in July exceeded one million for the first time since the pandemic.

EMEA (0.1%) equities finished flat. Turkey (+24.6%) soared as foreign investors purchased stocks at the fastest pace since last November and Turkish investors acquired equities to protect against the highest inflation in a quarter of a century. Even as inflation surged to nearly 80% in July, the central bank unexpectedly cut its policy rate by 100 bps to 13% and introduced new policy that more closely ties rates on consumer loans to the policy rate in an attempt to counter signs that the US$800 billion economy might be slowing. In Hungary (+0.4%), the central bank lifted rates by 100 bps to 11.75%, and the government introduced a five-point plan to support the agriculture sector against extraordinary drought damage. A deteriorating outlook for energy supplies hurt Poland (-12.0%) and the Czech Republic (-9.1%), while the hawkish stance of their central banks moderated as economic growth slowed. South Africa (-1.8%) ended modestly lower.

Fixed Income

Fixed income markets were weighed down by slowing economic growth, an intensifying energy crisis, and steadfast hawkish policies from major central banks to combat unyielding inflation, which elicited a sharp increase in sovereign yields. Spread sectors posted mixed excess-return results. 

US economic releases showed resiliency in the economy, and a drop in energy prices provided some near-term relief from inflationary pressures. The labor market remained strong amid a surprisingly robust gain in nonfarm payrolls, particularly in the retail, health, and professional services sectors. The ISM Manufacturing Index rose, underpinned by improving supply chains, while regional manufacturing indices posted mixed results. Durable goods orders were unchanged, owing to a drop in demand for defense aircraft. The housing market faltered amid tight inventory and high home prices, and the National Association of Home Builders Housing Market Index contracted to below the key 50 breakeven point. Eurozone inflation rose year over year, driven by a surge in food and tobacco prices, while the eurozone Composite PMI dipped to an 18-month low as inflationary pressures weighed on demand. Germany’s ifo Business Climate Index dipped amid energy supply concerns. The UK’s inflation reached a 40-year high as living costs and energy prices continued to skyrocket and housing costs increased above consensus estimates. China’s Caixin manufacturing PMI contracted for the first time in three months due to COVID outbreaks, power shortages, and weakening demand. Japan’s industrial production advanced year over year as global supply-chain issues eased. Canada’s annual inflation rate edged lower due to falling gasoline prices.

The Fed reinforced its hawkish stance. The Reserve Bank of Australia, Norway’s Norges Bank, and the Reserve Bank of New Zealand hiked interest rates by 50 bps. The BOE lifted rates by 50 bps and downwardly revised its GDP growth forecasts. The PBOC cut its lending facility and loan prime rates.

Most global sovereign yields rose sharply, particularly in Europe, on higher-than-expected inflation and hawkish narratives from major central banks. US Treasuries outperformed bunds and gilts as inflation data moderated in the US relative to Europe and the UK. Fed Chair Powell’s statements triggered substantial yield increases as markets began pricing in a faster pace of rate hikes and a higher-for-longer rates trajectory. Gilts underperformed within G10 due to the BOE’s rate hike and greater economic uncertainty. European yields increased sharply amid a record-high inflation print. ECB officials introduced the possibility of supersized rate hikes following a substantial rise in energy prices. Italian government bond yields increased due to political uncertainty ahead of snap elections in September. EM yields ended mixed, while Chinese government bond yields fell as the PBOC cut lending rates to support the deteriorating economy. The Bloomberg TIPS index delivered a total return of -2.66%, and the 10-year breakeven inflation rate decreased by 7 bps, to 2.48% during the month.

Global credit slightly outperformed duration-equivalent government bonds as spreads tightened modestly. Within the securitized sectors, agency mortgage-backed securities underperformed, commercial mortgage-backed securities performed in line with, and asset-backed securities outperformed duration-equivalent government bonds, respectively. Within EM, local markets debt (-0.14%) outperformed external debt (-0.95%), in US-dollar terms. Spread narrowing contributed positively to results within external debt, while movement in US Treasury yields had a negative impact. Depreciation of EM currencies drove negative performance in local markets, while movement in EM rates helped results.


The US dollar rallied sharply versus most major currencies as hawkish Fed comments and concerns about global economic growth pushed the dollar to a new 20-year high. The Swedish krona declined most among the G10 currencies as weaker economic data increased the market’s expectations for more aggressive rate hikes by the country’s central bank. The euro fell to parity against the US dollar despite hawkish ECB rhetoric. The British pound realized its worst month since 2016 as the BOE’s rate hike was overshadowed by a weaker economic outlook for the UK. The Japanese yen fell to a new year-to-date low against the US dollar as the BOJ remained resolutely dovish on monetary policy. In EM, most currencies declined except for select trade and commodity-linked currencies (Russian ruble, Mexican peso, and Chilean peso). The Chinese yuan declined, driven primarily by economic and policy divergence with the US.


Commodities (-2.7%) ended lower, with only one of the four sectors generating positive returns. Agriculture and livestock (+3.0%) was the only positively performing group, led by cotton (+17.3%). Cotton prices surged after a confluence of extreme weather events damaged crops in nearly all the top-producing countries and weakened the outlook for global supplies. Coffee (+10.6%) rallied on signs of a deteriorating supply outlook from key growers and falling stockpiles. Corn (+9.3%) rose as extreme heat damaged US crops, while corn fields across the European Union continued to suffer from potentially the worst drought in 500 years. Cocoa (+2.4%) advanced amid worries about the availability of fertilizers in West African growing areas, in addition to falling stockpiles in the US. Sugar (+2.2%) advanced as persistently dry weather in the sugar-producing areas of Brazil hurt the yield outlook. Wheat (+1.8%) edged higher, with droughts hurting the world’s harvest and the ongoing war in Ukraine hindering supplies. Live cattle (+0.5%) ended higher, while feeder cattle (0.0%) ended flat. Soybeans (-2.9%) declined as expectations for a record US harvest outweighed concerns about late-season weather woes. Lean hogs (-5.6%) ended lower, under pressure from a seasonal slowdown in demand and anxiety about potentially excessive supply at a time of high inflation and economic slowdown.

Industrial metals (-2.8%) declined on broad-based weakness in the group. Zinc (+5.7%) was an outlier, surging on expectations that the global supply deficit would widen following the announced closure of the Budel smelter in the Netherlands — one of Europe’s largest smelters. Copper (-0.9%) slipped for the fifth consecutive month amid mounting fears of global recession. Lead (-3.9%), aluminum (-5.3%), and nickel (-9.4%) moved lower on fears that Europe’s energy crisis, tighter monetary policy by the Federal Reserve, and China’s zero-COVID strategy would impair demand for industrial metals.

Precious metals (-3.7%) were weaker for the fifth straight month as Fed officials reiterated their commitment to tighter monetary policy. Gold (-2.9%) declined, while silver (-11.9%) plunged on anxiety about the global macroeconomic environment, given silver’s broad industrial usage.

Energy (-4.5%) finished the month in negative territory. Gasoline (-14.3%) plummeted on signs of weakening US demand. Crude oil (-7.3%) and gas oil (-0.1%) declined amid escalating concerns of a global economic slowdown. In contrast, heating oil (+4.5%) was higher on news of lower-than-average supplies in the northeastern region of the US, which increased the chances that an extreme weather event could disrupt supplies. US natural gas (+11.3%) rallied as the market faced tight inventories heading into the winter heating season, while above-average temperatures, particularly across the West and East Coasts, increased the demand for cooling.

monthly market snapshot aug 2022 fig1

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