Global markets including the US had a positive run in the first half of the month. However, sentiment worsened in the second half of the month, as concerns over monetary tightening and recessionary risks re-emerged. Over the month of August, the Dow, S&P 500, and the NASDAQ lost 4.06%, 4.24%, and 4.64% respectively.

Inflation remains elevated in the US, Fed President Jerome Powell reiterated that price stability is the primary responsibility of the Fed, and to achieve that, a ‘sustained period of below-trend growth’ is an acceptable price to pay. Further tightening will continue until inflation is solidly back in line with the long term target level. He also hinted that another big hike would be appropriate, depending on the latest data. With the restrictive monetary policy expected to stay for a much longer period, downward pressures on the investment market should remain.

Other than the red hot labour market, other economic data were mixed for the month. Markit and ISM Services PMIs diverged, ISM figures suggested a more positive outlook for the larger corporations, while Markit data hit an over 2 year low, suggesting that smaller companies continue to experience stress and sentiment have soured. In the short to medium term, the trend of the economic fundamentals and the monetary policy will likely stay unchanged, recessionary risks stay elevated, and we still see downside in US equities outweigh upside potential. We suggest investors to await deeper correction before rebuilding positions in the US equity market.