Portfolio Summary
August kicked off with some turbulence, carrying over the volatility seen in July. What started as a rotation out of Big Tech became a broader market pullback sparked by concerns over a possible U.S. recession following softer jobs data.
Better-than-expected labour market data eased investor concerns that the Fed had delayed cutting rates in the second week of August. Adding to the optimism, Fed Chair Jerome Powell reassured markets, stating that they would do everything they could to support the labour market and hinting at a potential rate cut in September. This fueled a swift stock market recovery, with August ending positively. The S&P 500 rose by 2.28%, the tech-heavy NASDAQ gained 0.7%, and the Dow Jones Industrial Average increased by 1.76% for the month.
With the Fed’s rate unchanged in July, did buyers finally emerge in August, or are they waiting for further reductions in September?
The average 30-year fixed mortgage rate fell to 6.48%, providing a modest boost to buyer purchasing power. Despite this decrease and a rise in home sales for the first time in months, many buyers still hold out for lower rates, with about 86% waiting for additional cuts.
Although mortgage rates are trending downwards, they haven’t yet significantly swayed buyer sentiment and expectations for future rate movements remain mixed. Jerome Powell has suggested that more Fed rate cuts could be on the horizon, but the timing will depend on upcoming data. Additionally, the US market faced turbulence with a weaker-than-expected July jobs report and the Bank of Japan’s unexpected interest rate hike.
The Bank of Japan’s unexpected interest rate hike in August 2024, aimed at curbing rising inflation and stabilizing the yen, had a ripple effect on the US market. Making Japanese bonds more attractive leads investors to shift money away from US bonds. This caused bond prices to drop and yields to rise, increasing borrowing costs in the US during high fiscal spending. This also impacted the US stock market, as higher bond yields made borrowing more expensive for companies and prompted investors to favour bonds over stocks, leading to stock price declines and greater market volatility.
While the rate cut has started stimulating some market activity, buyer hesitation indicates that further reductions might be necessary to fully restore confidence. We anticipate that more buyers will enter the market as rates potentially decrease further. Our outlook remains positive, supported by current trends and strategic asset positioning.
The 10-year Treasury yield closed August at around 4.20%, compared to 4.00% at the start of the month. The steepening of the yield curve in longer maturities suggests that investors are beginning to price in long-term inflation concerns and the possibility of higher borrowing costs in the future.
The primary drivers behind these yield movements were the Federal Reserve’s hawkish tone, sticky inflation, and resilient labour market data. Inflation remained stubborn, especially in core categories, prompting concerns that interest rates could stay higher longer. The labour market’s strength, with low unemployment claims and steady job growth, further supported this outlook.
Looking ahead, we expect volatility in the bond market to continue as upcoming economic data will influence Federal Reserve policies. Yields may stabilize if inflation decreases and the labour market softens. However, persistent inflation or strong economic performance could lead to higher yields.
Stocks
For August, the S&P 500 gained 2.28%, the tech-heavy NASDAQ rose 0.7%, and the Dow Jones Industrial Average increased by 1.76%. The Rise Equity portfolio outperformed, closing with a solid 4.56% monthly gain.
NVIDIA reported its earnings on the 28th of August, marking the end of our earnings season at rise. They had a stellar earnings report, beating analysts’ estimates. However, the stock experienced a minor pullback, as investor expectations had been set exceptionally high, anticipating even more extraordinary performance.
Looking forward, we anticipate a highly volatile mix for September. Historically, September, the end of the third quarter, tends to be a weaker period for the stock market. However, optimism surrounding a potential rate cut and further cooling unemployment data adds another layer to the volatility narrative, keeping investors on edge as they navigate these mixed signals.
We encourage our investors to sit tight. Rest assured, we’ll be looking for opportunities—whether that’s great stocks or hedges if needed—to navigate these choppy waters. Our commitment remains the same: delivering the best possible returns for you, even in uncertain times.
Real Estate
Our Real Estate portfolio generated 1.07% for August, consistent with previous solid returns. In the broader market, the 30-year fixed mortgage rate fell to an average of 6.48%, offering some relief to potential buyers. However, with many still holding out for further reductions, demand remained tempered. Despite these cautious market dynamics, our portfolio’s underlying assets continued to perform steadily, buoyed by strong rental demand, especially in our strategic locations where rental properties remain highly attractive amidst ongoing housing shortages.
The potential for further rate cuts hinted at by Jerome Powell’s August address adds a layer of uncertainty as we look ahead. Yet, we remain confident in our strategy of selecting high-performing assets well-positioned to weather short-term fluctuations while generating consistent, long-term returns.
FIXED INCOME
Our Fixed-Income portfolio delivered a solid return of +0.83%, mirroring our consistent performance throughout the year. This steady return highlights the robustness of our fixed-income strategy, which effectively navigates market fluctuations while maintaining reliable income generation.
Conclusion
As we move forward, several key factors will influence market dynamics, including the interplay between the Bank of Japan and Federal Open Market Committee interest rates, the upcoming USA elections, and geopolitical tensions, including the Russia-Ukraine situation. These elements will impact commodities, supply chains, and inflation.
We are closely monitoring the evolving market landscape, and our commitment to delivering value remains unchanged. Our portfolio will continue to deliver strong returns as the market evolves.