Nvidia delivers, markets underwhelmed and a Banana Skin for Trump!
Author: Tom McGrath, CIO, 8AM Global
Market Overview
August lived up to its reputation: thin liquidity, volatile headlines, and markets that couldn’t quite decide whether to party or panic. The crosscurrents were evident in performance, as Japan and China led the equity scoreboard with gains of over 4%, while the S&P 500 ended the month modestly higher. Europe and the UK delivered smaller but positive returns, and emerging markets lagged despite a late bounce. Fixed income was steadier: global corporates eked out gains as yields drifted lower, while gilts again underperformed on persistent UK inflation worries.
Against that backdrop, investors spent the month grappling with a familiar dilemma: resilient earnings on one side, and softer macroeconomic data on the other. Nvidia once again reminded markets of AI’s structural pull, but profit-taking showed positioning was stretched. Meanwhile, tariffs and court battles kept geopolitics front and centre, and China’s uneven recovery continued to weigh on sentiment. Let’s take a look at the key events from last week.
US: Spending holds up, GDP revised higher, wealth effect cushions the blow
The US consumer once again proved resilient in July, with real spending up 0.3%, the best in four months. Durable goods led the charge, flattered by promotions such as Amazon’s Prime Day, while wages and salaries jumped 0.6%, the strongest since last November. Yet beneath the resilience, consumer confidence slipped to a three-month low, with inflation expectations ticking up to 4.8%.
The GDP data painted a similarly nuanced picture. Second-quarter growth was revised up to an annualised 3.3% from 3%, with business investment rising at a 5.7% pace and net trade adding nearly five percentage points, the biggest boost on record. Corporate profits rebounded 1.7% after a tough first quarter, and gross domestic income surged 4.8%. On the surface, it was an impressive rebound from Q1’s tariff-distorted contraction.
But the composition matters. Consumer spending, still the economy’s engine, grew at just 1.6%, the slowest run-rate since the pandemic, while final sales to private domestic purchasers rose only 1.9%. As Citigroup economists put it, ‘underlying demand is slowing outside of a few specific parts of the economy.’ With tariffs pushing costs higher, the sustainability of headline growth is open to question.
The inflation picture adds to the tension. Core PCE rose 0.3% month-on-month in July and 2.9% year-on-year, the hottest since February. Service costs surged, from portfolio management fees (not ours!) to entertainment, while goods prices dipped; a relief that may not last once tariffs feed through to shelves. Powell acknowledged at Jackson Hole that tariffs are now ‘clearly visible’ in the data, even as he carefully opened the door to a September rate cut.
Part of the reason the wheels are still turning for now is the wealth effect. The bull market has lifted equity holdings to a record $46.7 trillion, with Gallup showing that 62% of Americans are now invested in stocks, the highest since 2008. Baby Boomers, who hold more than half of that wealth, are the richest retiring generation in history, and their net worth continues to rise even as they spend down and transfer assets. Rising portfolios are offsetting the drag from higher credit delinquencies and a cooling jobs market, keeping spending supported for now.
The question for the Fed is whether this resilience is sustainable. Consumer confidence slipped to a three-month low in August, with inflation expectations edging up to 4.8%. Chair Powell used Jackson Hole to carefully open the door to a September rate cut, noting tariffs are now ‘clearly visible’ in the data. Markets remain convinced a cut is coming, and if it does, I do think that equity multiples could extend higher still, reinforcing the very wealth effect that’s keeping consumption afloat.
US Micro: Nvidia leads, Magnificent 7 deliver — and the market runs on oxygen
Earnings season has pretty much finished with Nvidia, and once again, the AI bellwether didn’t disappoint. Revenue and EPS topped expectations, guidance was strong, and demand for chips shows no sign of slowing. Yet the share price reaction was telling, with an initial pop on Thursday, followed by a sharp fade into the weekend as investors likely decided it was time to lock in profits after a strong run over the last three months. Still, Nvidia is delivering fundamentals that probably justify the hype to some degree, but the market’s stretched positioning means even exceptional results no longer guarantee upside.
The broader Magnificent 7 told a similar story. All seven posted positive EPS surprises, compared with 81% of the S&P 500. In aggregate, they delivered 26.6% earnings growth in Q2, far above the 13.9% analysts expected back in June. Nvidia, Amazon, Meta, and Microsoft ranked among the biggest contributors to overall S&P 500 growth, underscoring just how concentrated the earnings engine remains. Analysts expect growth to slow to 15% per quarter over the coming year, but that’s still enough to keep the group at the centre of US corporate strength.
Together with the prospect of Fed rate cuts in September, this earnings power has been the oxygen fuelling the S&P 500’s ascent to fresh record highs. Valuation multiples have melted upwards as investors price in both resilient profits and looser policy, a powerful combination, but one that leaves the market perched at stretched levels. Corporate America is delivering, the Fed looks set to ease and yet equity investors are cautious, aware that so much good news is already embedded in prices.
The question for September is whether this oxygen flow continues. If Powell does cut, liquidity will reinforce the wealth effect that’s already keeping consumers spending. But with multiples extended and breadth narrow, the market’s dependence on both Fed support and a handful of mega-cap names has rarely been more obvious.
UK: Inflation concerns meet fiscal clouds
UK equities struggled into month-end, with the FTSE dragged lower by renewed fears of a bank windfall tax. NatWest, Lloyds and Barclays led the declines after think-tank proposals to tax bank reserves raised concerns about fiscal credibility. The sell-off capped the FTSE 100’s fourth straight weekly drop, its weakest run since April.
Beneath the surface, the picture was more balanced. Business confidence improved, with Lloyds’ survey showing sentiment at an 11-year high, while housing transactions climbed to a five-year peak. Yet bond markets told a different story: 30-year gilt yields pushed above 5.6%, the highest since 1998, as investors fretted over supply, deficits and persistent inflation.
On that front, the backdrop is proving stickier than hoped. Food prices jumped to a 17-month high of 4.2%, while Ofgem’s latest increase in the energy price cap means households face renewed pressure on bills heading into winter. The Bank of England did cut rates this month, and analysts still see scope for one more reduction before year-end, but the idea of “inflation relief” looks premature. For now, UK assets are caught between improving sentiment and a worsening fiscal and inflation backdrop, a combination that keeps gilts under pressure even as equities look for monetary support.
Europe: Cautious progress, French politics intrude
European data presented a mixed picture last week, but the overall tone is slightly less gloomy than it was earlier in the summer. Germany’s Ifo index signalled a clear improvement in sentiment, even if the broader Economic Sentiment Indicator suggests Q3 growth will remain subdued. Leading indicators still suggest export weakness in the months ahead; however, the worst-case tariff scenarios have been taken off the table by the EU–US trade deal. That gives corporates more visibility to reset long-term plans and provides the foundation for modest momentum into 2026.
Domestic demand is holding up better than feared, with investment and employment still relatively resilient. Inflation is stabilising close to target, which should give the ECB confidence to cut rates again later in the year if activity softens further. For now, policy is becoming more supportive, and the macro environment, while hardly booming, looks less fragile than it did earlier in 2025.
France remains the outlier, with Prime Minister François Bayrou likely to lose a confidence vote on September 8th. Bond markets have already priced in greater risk, with French spreads over Bunds at decade highs. Still, political churn is unlikely to derail the broader Eurozone recovery story, which rests more on Germany’s improving sentiment, resilient consumers in southern Europe, and a calmer trade backdrop.
Overall, Europe is inching forward — not out of the woods, but on firmer ground than in the spring, with a more constructive tone returning to equity markets.
Asia & Emerging Markets: Support, strain and slow shifts
Across Asia, the story remains one of policy support struggling to offset structural headwinds. In China, property easing dominated the headlines, with authorities loosening home-purchase rules to spark demand. Developers and housing stocks briefly surged, but the wider economy still appears fragile: industrial activity is soft, sentiment is subdued, and tariffs continue to cloud the trade outlook. The government’s pivot toward targeted support, such as childcare subsidies, selective tax breaks, and housing measures, suggests a more gradual approach than the big-bang stimulus investors might hope for. Nevertheless, animal spirits seem to be returning to local investors and the Chinese stock market decoupled with global indices over the last two weeks of August.
Japan delivered a different message. Inflation is cooling in Tokyo, with core prices easing, yet underlying pressures remain above target. Industrial output dipped, and retail sales were tepid, highlighting a loss of momentum. The Bank of Japan is caught in the middle, wary of yen weakness and imported inflation, but mindful of the fragile recovery. Markets still expect at least one more hike later this year, although the timing appears increasingly data dependent.
Elsewhere in EM Asia, resilience is uneven. India continues to outpace peers with GDP growth near 8%, underpinned by domestic demand, while South Korea remains hostage to global trade frictions and semiconductor cycles. Tariffs from Washington are now weighing on export expectations, even as chip demand provides some cushion. Investor flows reflected the push-and-pull: EM equity funds experienced outflows until the month-end, while EM bond funds attracted steady inflows, a sign that investors remain more comfortable with harvesting carry than chasing growth stories.
The broader picture is of a region adjusting rather than accelerating. Policy makers are providing oxygen where they can, but the global trade slowdown and tariff uncertainty cap upside. For investors, EM debt appears to be the cleaner beneficiary of easier Fed policy. At the same time, equity markets will need either a stronger China pulse or confirmation of domestic demand resilience in India and ASEAN to regain momentum.
The road ahead: September reset, seasonal shadows
August closed with markets near record highs, but the foundations look uneven. In the US, spending and investment are holding up, yet inflation remains sticky, and tariffs are filtering through. The Fed looks set to cut in September, but the decision is finely balanced: act too late and the labour market risks rolling over, act too soon and they risk fuelling already-stretched valuations. In the UK, the BoE has eased, but gilt yields are still flashing fiscal stress, and the looming Autumn Budget could yet unsettle markets further if tax rises or heavier borrowing spook investors. Europe is showing tentative stabilisation, though France’s political drama has left its spreads at decade highs. Across Asia, China’s housing tweaks, Japan’s softer data and India’s resilience tell a story of patchy progress rather than momentum.
Markets have chosen to focus on the positives, such as looser policy, resilient data, and another quarter of strong results from the Magnificent 7. But beyond that handful of giants, earnings breadth remains thin. Without a continued stream of positive corporate news, equities appear vulnerable, leaving the Fed to carry more of the burden in keeping sentiment afloat. That dependence on policy and narrow profit engines is not the most comfortable foundation heading into autumn.
September and October often prove awkward months for equities, and this year’s calendar is heavy: US inflation and jobs reports, a pivotal Fed meeting, the ECB, France’s confidence vote, and the UK’s Autumn Budget. The setup is still constructive, growth is not collapsing, and central banks are leaning easier, but the margin for error is narrowing. The autumn test will be whether policy support and corporate strength can keep markets aloft, or whether stretched valuations finally meet seasonal gravity.
Post Script… late on Friday: Political & tariff update: Court blow, Supreme Court in play
Markets got an unexpected jolt from Washington’s legal machinery on Friday, as the US Court of Appeals for the Federal Circuit ruled that most of President Trump’s global tariffs, the so-called ‘Liberation Day’ levies, were unlawful. In a 7–4 decision, the judges declared that, as trade lawyers have long argued, tariffs are a tax, and under the Constitution, taxes are the sole domain of Congress.
The ruling strikes at the heart of Trump’s economic doctrine. Since returning to The White House, tariffs have been his preferred blunt instrument, justified under the International Emergency Economic Powers Act (IEEPA) to cover everything from fentanyl trafficking to reciprocal treatment of US exports. The court wasn’t persuaded, describing the measures as ‘unbounded in scope, amount, and duration’ and well beyond the powers delegated to the executive.
The decision does not take effect until October 14th, giving the administration time to appeal to the Supreme Court. Trump immediately blasted the ruling as highly partisan and vowed that the justices would restore his authority. But that is far from guaranteed. While the court has a conservative majority, it has historically defended Congress’s primacy over taxation and tariff powers, and the text of IEEPA simply doesn’t mention tariffs. Believe it or not, the base case is that the Supreme Court is more likely to uphold the appeals ruling than overturn it, which would strip Trump of his IEEPA-based tariffs and push any new levies back into the realm of Congressional Politics.
Markets responded quickly. US industrials and exporters rallied on hopes of tariff relief, while steelmakers and companies benefiting from reshoring lagged. The broader implications are significant:
- Equities: A final ruling against Trump’s tariffs could be bullish for global cyclicals, autos, EM equities and retailers, while protectionist winners may give back ground.
- Bonds & FX: Removing tariffs would reduce an inflation overhang, supportive of Treasuries and a headwind for the dollar as trade-war premia fade.
- Global context: Europe, Mexico and China would be key beneficiaries, potentially easing tensions at a moment when global PMIs are showing early signs of stabilisation.
For now, all tariffs remain in place, but the legal uncertainty adds another variable to a market already balancing Fed policy, inflation risk, and earnings concentration.
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