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Month in the Markets: August 2023

A round-up of the latest month in the markets.
The text 'A month in the markets' written on a blue background
Reading time: 6 mins

The Month in a Minute

📰 Overall: Despite a generally volatile month, the final week of August was an optimistic one, with shares and bonds bouncing back after previous weeks’ losses.

💪 Benchmark Performance: Performance was in line with benchmarks in August, with Plans still showing healthy outperformance in 2023.

📈 Market Movers: Japanese markets (+0.24%); Asia Pacific (APAC; -6.37%).

📋 Plan Summary: Plans with a higher allocation to lower-risk assets performed better than those with a higher allocation to shares.

🌍 Original Plans: Shares (-1.38%) and bonds (-0.14%) delivered negative returns.

🌳 Ethical Plans: Shares dropped by -1.49%, while bonds posted a modest loss of -0.06%.

⏲ Going Forward: Despite encouraging signs for developed economies, we maintain a cautious outlook, particularly regarding the potential long-term impact of higher interest rates. We continue to favour bonds,  as they have a better risk-reward compared to shares that trade at lofty prices.

Market volatility returned in August, with several assets experiencing periods of turbulence throughout the month. Our diversified and defensive approach (that favours bonds) helped protect our Plans against the full impact of price drops of riskier asset classes.

The benefits of our positioning were weighed down slightly by the negative impacts of rising US bond yields on selected assets. Data released during the month continued to show signs of resilience across developed economies, fuelling the ‘higher-for-longer’ narrative, where investors anticipate central banks will maintain elevated interest rates.

This resulted in some sudden price moves in bond markets, with US 10-year government bond yields reaching their highest levels in over 15 years.

The recent spike in bond yields – coupled with ongoing concerns around China’s economic struggles – reversed the positive momentum seen in share prices over the past few months. Bond prices were also negatively affected, but to a lesser extent.

Despite this, optimism returned in the final week of August, where shares and bonds recaptured some of their losses from previous weeks, as supportive measures were announced by China and US jobs numbers slowed.

Whilst a positive reaction to a weakening labour market may seem contradictory, it reflects investors’ hopes that a slowing economy may prompt central banks to cut interest rates sooner than expected. Although we continue to think this outcome as being less likely.

Jerome Powell, the Chair of the US Federal Reserve (the Fed), refused to rule out further rate hikes in his speech last month1 , emphasising that the central bank’s battle with inflation is far from over. US inflation accelerated to 3.2% in July and remains firmly above the Fed’s 2% target, albeit lower than expected. Wage growth remains a concern for the inflation outlook, as hourly wage rates surprised again (+0.4%).

Activity data in the US also signalled a slowdown, as services disappointed and manufacturing continues to indicate economic decline. A similar trend has emerged in Europe, where the composite activity index – which combines services and manufacturing data – declined to its lowest level since the COVID pandemic.

While headline inflation (5.5%) remains high in Europe, core inflation – which excludes energy and other volatile components – slowed to 5.3%, providing some relief to the European Central Bank (ECB). Despite this, markets are currently predicting additional ECB rate hikes over the coming months. Further action is also expected from the Bank of England (BoE), which raised interest rates by 0.25% last month (to 5.25%), as headline inflation (6.8%) once again exceeded expectations.

The impact of previous rate hikes is evident in the housing market, where the Nationwide house price index has dropped to its lowest point since 2009.

Nevertheless, there are still positive signs for the UK, including a robust labour market and better-than-expected economic expansion in the second quarter.

While there are encouraging indicators for developed economies, we maintain a cautious outlook, particularly regarding the potential long-term impact of higher interest rates. Our approach, which currently favours bonds over shares, helped dampen volatility across Plans in August.


Most major indices posted negative returns in August, causing global shares to decline by -2.96%. Although global bonds offered better protection, they still dropped by -1.37%.

Japan’s economic expansion encouraged investors, leading to a modest return of +0.24% and marking the biggest positive across markets for the month.

Weaker-than-expected economic performance (and deflation figures) in China played a significant role in a sell off last month, coupled with inflation concerns. This resulted in the first negative month for US stocks (-1.78%) since February. Europe, a major trade partner of China, declined by -2.79%. In the UK, FTSE 250 (small and mid-sized companies) showed more resilience than the FTSE 100 (larger companies), with these indexes delivering returns of -2.81% and -3.38% for the month, respectively.

Emerging Markets (EM; -6.36%) and Asia Pacific (APAC; -6.37%) were naturally weighed down by the growth concerns surrounding China (and generally negative attitude towards riskier assets).


Investors looked for protection in the US Dollar last month due to its safe-haven status, with an increase in interest rate expectations from the Fed also contributing to the currency strengthening against Sterling by +1.28%. Sterling was flat compared to the Euro but appreciated (+1.00%) against the Japanese Yen, benefitting from interest rate differentials.

Investment type performance breakdown

Shares delivered negative returns (-1.38%) for our Original Plans in August. However, our underweight position in EM and APAC protected Plans from the turbulence in Chinese markets. Bonds were relatively flat for the month (-0.14%), as positive returns from our allocation to shorter-dated UK government bonds were only marginally outweighed by losses from other regions.

In our Ethical Plans, shares dropped by -1.49%, whilst bonds posted a modest loss of -0.06%. Money market continues to benefit from higher interest rates and provided positive returns for Ethical and Original Plans.

Summary with Plan details

Due to the outperformance of bonds in August, Plans with a higher allocation to lower-risk assets performed better than those with a higher allocation to shares. Our Investment Team continues to actively monitor the financial markets and their impact on Plans — and are always ready to act in your best interests to events as they unfold.

We are continually evaluating new market information and key market drivers to help keep your Investment Plan on track.

It’s important to remember that it’s normal for markets to go up and down, with periods of volatility to be expected when you invest. As always, we continue to look for opportunities to position your investments, with the goal of protecting your money and achieving your long-term objectives.

Wealthify does not provide financial advice. Please seek financial advice if you are unsure about investing.

Please remember the value of your investments can go down as well as up, and you could get back less than invested. Past performance is not a reliable indicator of future results.


1. https://www.federalreserve.gov/newsevents/speech/powell20230825a.htm

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