The summer months confirmed the ability of financial markets to absorb a succession of significant shocks. Renewed tensions in the Middle East, oil price volatility, a more restrictive stance from the Federal Reserve, and a sharp rise in bond yields did not prevent the major equity markets from maintaining an overall positive trend.
Behind this apparent calm, however, a significant shift took place. Investors became increasingly selective, paying greater attention to valuations, earnings quality, and companies’ ability to translate investment — particularly investment related to artificial intelligence — into tangible economic growth.
Geopolitics and oil return to the spotlight
Following the truce that had characterized the end of June, July saw a renewed escalation in tensions between the United States and Iran, bringing the Strait of Hormuz back to the forefront of market attention.
Attacks on oil tankers and military installations fueled concerns over potential disruptions to energy flows, triggering sharp swings in oil prices. During the most acute phases of the crisis, Brent crude temporarily rose above USD 100 per barrel, before correcting rapidly whenever signs of de-escalation emerged.
August followed a similar pattern. An initial period of relative calm helped oil prices retreat, but the resumption of hostilities in the second half of the month pushed Brent back above USD 90 per barrel.
Oil therefore reaffirmed its role as one of the key indicators of geopolitical risk and, more importantly, as a major macroeconomic variable. A prolonged period of elevated energy prices could slow the disinflation process and force central banks to maintain restrictive monetary policies for longer.
Federal Reserve: shifting interest-rate expectations
The second major theme of the two-month period was the gradual shift in expectations surrounding U.S. monetary policy.
The Federal Reserve, led by Kevin Warsh, initially kept interest rates unchanged, but divisions within the committee and persistent inflationary pressures gradually altered investor expectations.
The message became even clearer at the Jackson Hole symposium, where Warsh reiterated that inflation remains the central bank’s primary concern, while at the same time highlighting the resilience of the U.S. economy and labour market.
As a result, markets began to seriously consider the possibility of further interest-rate increases.
This reassessment of expectations had its greatest impact on the bond market. Long-term U.S. Treasury yields rose significantly, with the 10-year yield temporarily exceeding 4.75% during August.
For bond investors, the move had a twofold effect: on the one hand, it generated losses on bonds already held in portfolios, particularly those with longer duration; on the other, it pushed prospective yields on new investments back to significantly more attractive levels.
Equities: solid earnings offset rates and geopolitical risks
Despite this backdrop, equity markets demonstrated remarkable resilience.
In the United States, the quarterly earnings season produced generally solid results, although market reactions to individual companies became increasingly selective.
The technology sector was once again in the spotlight. Some earnings releases triggered significant corrections, highlighting just how high the expectations embedded in current valuations have become. At the same time, results from major technology companies and leading semiconductor manufacturers continued to support the view that investment in artificial intelligence represents an important structural driver of growth.
Another encouraging development was the gradual broadening of market participation. During the summer, performance was no longer driven exclusively by the largest technology companies: industrials, financials, commodities and some more defensive segments began to make an increasingly meaningful contribution.
In Europe, the backdrop remained relatively solid. Corporate earnings generally supported equity markets, and the STOXX Europe 600 ended August with its fifth consecutive monthly gain. Europe’s greater exposure to financials, industrials, energy and value-oriented companies also provided greater diversification compared with the heavy technology concentration of the U.S. market.
Bonds: yields become attractive again
The rise in long-term interest rates was arguably the most important development of the summer for multi-asset portfolios.
Concerns over persistent inflation, rising oil prices and doubts surrounding the sustainability of U.S. fiscal policy placed renewed pressure on government bonds.
In the short term, this environment remains challenging for long-duration bonds. However, higher yield levels are gradually improving the asset class’s risk-return profile.
After many years characterized by extremely low yields, the bond market is therefore once again offering attractive opportunities, particularly through active duration management and careful credit-quality selection.
Gold remains in the spotlight
Gold also played an important role during the summer.
The precious metal benefited from geopolitical uncertainty and demand for defensive assets, while remaining highly sensitive to fluctuations in U.S. real yields and the dollar.
These dynamics confirm that gold continues to represent an important source of portfolio diversification, while also demonstrating that its performance does not depend solely on geopolitical risk: real interest rates, monetary policy and movements in the U.S. dollar remain key drivers.
Outlook
As we enter the final part of the year, the overall backdrop remains constructive, but more complex than in previous months.
Global economic growth continues to demonstrate resilience and corporate earnings remain generally solid. At the same time, however, elevated valuations in certain segments of the U.S. market, higher bond yields and persistent geopolitical tensions suggest a more cautious approach.
The main factors to monitor will be developments in the Middle East conflict and flows through the Strait of Hormuz, the evolution of oil prices, upcoming decisions by the Federal Reserve and other major central banks, and the ability of technology companies to justify the enormous investments related to artificial intelligence through earnings and cash-flow generation.
In this environment, diversification, investment quality and active risk management remain central to portfolio construction. Rather than attempting to anticipate every short-term market move, we believe it is important to maintain a disciplined approach capable of capturing the opportunities created by higher bond yields and the structural growth of selected sectors, while remaining mindful of the risks arising from elevated valuations, geopolitical uncertainty and inflation.