CAPITAL MARKETS MONTHLY : EQUITIES

United States

Earnings Strength Offsets Higher Yields

U.S. equity markets reached fresh record highs in August, supported by strong corporate earnings and optimism that Middle East tensions would ease, although some of these gains faded later in the month. Fiscal concerns remained in the background, while rising corporate borrowing, particularly by hyper-scalers funding AI-related capex, added upward pressure to long-term Treasury yields. 

U.S. economic data released during August presented a mixed but broadly resilient picture. The Federal Reserve’s preferred inflation measure (PCE) was reported at 3.7% YoY through July, well above the Fed’s 2% target, reinforcing concerns that disinflation had stalled. Furthermore, several Fed officials expressed the view that inflation remained “sticky” and insufficiently controlled. Monetary policy was also a key focus, with market expectations shifting from gradual policy easing to possible tightening following the Jackson Hole speech from Fed Chair Warsh. 

Payroll growth disappointed, with headline employment declining and previous months revised lower, although weakness was concentrated in leisure and hospitality and local government education, which could see a rebound. By contrast, construction and other goods-producing sectors recorded solid job gains, while the unemployment rate fell to 4.1%, its lowest level since early 2025. Inflation data was more encouraging, with core CPI holding at its slowest annual pace since March 2021. Combined with a benign PPI release, the data suggested that underlying price pressures continue to moderate, reducing the immediate need for further monetary tightening. 

Corporate earnings continued to provide a strong tailwind for U.S. equities. With the majority of earnings by market capitalisation having reported, earnings results materially exceeded expectations, supported by revenue growth and strong margins which had broadened. Nvidia delivered a moderate revenue beat, with revenue guidance for the current quarter also coming slightly ahead of expectations. This signalled greater optimism that current growth in AI demand would continue into next year. The software sector, which had faced concerns around AI-related business model disruption, delivered an encouraging set of results. 

Outside of technology, Caterpillar raised sales guidance whilst pushing back on concerns that data-centre demand is slowing. US retail earnings supported the theme of a resilient consumer supported by a still-healthy labour market and wage growth, despite ongoing concerns about inflation and fuel prices. Guidance was largely maintained rather than reduced, suggesting management teams remained constructive on the outlook, even while acknowledging macroeconomic uncertainty. 

US equities rose in August as strong earnings and AI-driven growth supported sentiment. Market leadership broadened beyond mega-cap technology, with mid- and equal-weight stocks outperforming. Energy led sector gains on higher oil prices, while Healthcare and Technology also advanced. Rising bond yields weighed on rate-sensitive sectors and tempered broader market gains.

Developed Asia

Earnings and Currency Tailwinds Support Japan

Hong Kong equities were weaker in August as soft economic data and higher global bond yields weighed on sentiment, although policy support expectations and resilient earnings helped limit losses.

Japanese equities advanced on strong April-June corporate earnings with increased breadth, a weaker yen and resilient domestic demand. However, rising 10-year Japanese Government Bond yields reached multi-decade highs, and expectations of further Bank of Japan policy tightening tempered gains.