Equities continued a winning streak this week, helped by the release of encouraging macroeconomic data that alleviated rate-hiking fears. Producer and consumer inflation in the US rose less than expected. This, paired with an increase in the number of Americans filing for unemployment benefits, signalled that the Fed may have made the right call by holding rates at its last meeting and reinforced investor perceptions that a September hike is unlikely.
Combined with strength in second-quarter corporate earnings and continued faith in the AI trade, the outlook helped to push the S&P 500 to another record close on Thursday, its roughly 30th such session this year. The Nasdaq 100 Index added around 1.2% for the week, while the Dow Jones Industrial Average was essentially flat.
This week’s performance cements the strong gains for the major US indices over the northern-hemisphere summer. The S&P 500 and Dow Jones Industrial Index have notched up gains of 3.1% and 5.8% respectively since 1 June. The tech-heavy Nasdaq 100 is down 0.8% since 1 June, despite July and August rallies in AI stocks, but it has generated a 19% return year-to-date.
When one zooms out for a bigger picture, it has not been a northern-hemisphere summer of smooth sailing. Trading has been choppy over the past three months or so. There were particularly notable drawdowns on 10 June and 29 July before markets clawed back their losses. JPMorgan’s global strategy team has labelled the conditions as “drawdowns, rebounds, repeat”.
The volatility has not been extreme enough to bring markets close to correction levels, but it suggests that investors are struggling to make sense of a range of complex and sometimes conflicting signals. Firstly, geopolitical tension around the Strait of Hormuz has kept energy markets on edge. The Strait of Hormuz remains largely closed, causing prolonged disruption to energy markets and supply chains.
A second and related point is that there are still reasons for concern about longer-term inflation and the interest rate outlook, this week’s data notwithstanding. Brent crude is trading near $88 a barrel, on pace for a weekly gain of around 6%. We can expect oil prices to be volatile as long as the conflict continues and traffic through the strait is disrupted. The impact on longer-term inflation remains to be seen.
Meanwhile, the US sold 30-year Treasury bonds this week at the highest yield in a quarter of a century. This is a signal that investors are demanding more compensation to finance the country’s growing fiscal deficit. It is also a reminder that longer-term interest rate concerns have not gone away even if near-term inflation data reads were a positive surprise.
Thirdly, confidence in the AI trade is prone to bouts of nerves. Even as AI-linked stocks continue to drive indices to new highs, investors question the scale of capital being deployed, the prevalence of circular financing arrangements, and whether the eventual returns will justify investment in data centres. AI jitters were a trigger for the June and July falls in equities markets with investors rotating between the AI play and defensive positions.
Fourthly, although US President Donald Trump’s tariff strategy has not been in the news as much this year as in 2025, it is still moving markets. As JPMorgan puts it, President Trump has made tariffs and export restrictions “normal tools of statecraft”. This can swing economic relationships and markets in unpredictable ways. Tariffs can also be a tailwind for some equities, such as Nike, which reported an expected $986 million tariff recovery in its results.
As the second quarter earnings season winds to a close, the AI trade and a resilient US consumer remain supportive pillars for equities markets. But between interest-rate uncertainty, volatile oil prices, and a US President who describes his approach to Iran as “low-keying it,” markets look set to keep oscillating between calm and short-lived scares for the foreseeable future.
“This summer’s narrative and market performance reinforce our view that structurally higher volatility is the new baseline, characterised by fatter tails and thinner patience.”
– JP Morgan strategists
Global News
- S&P 500 earnings growth has topped 30% in the second-quarter reporting season, one of the strongest three-month stretches in recent memory, with 85% of companies beating expectations, but investors are increasingly questioning whether profit growth is approaching a peak. Bank of America strategists said on Wednesday that earnings growth is expected to fall below 20% in early 2027 before slowing further, potentially creating a less supportive backdrop for US equities after their recent record highs.
- The S&P 500 hit a record high on Thursday, with the Nasdaq 100 gaining 1.15% and Treasury yields falling as softer US inflation reinforced expectations that the Fed will hold rates in September. Money markets priced in less than a 40% chance of a hike, although the US sold 30-year bonds at the highest yield in a quarter-century amid concerns over heavy government borrowing and the fiscal deficit. Gold retreated to around $4,310 per ounce on Friday as investors took profits after softer inflation data helped push the metal to a 10-week high earlier in the week.
- South Korean chipmakers led a sharp market rebound on Thursday as renewed enthusiasm for the global AI trade pushed the Kospi into a technical bull market. The index gained 3.6%, extending its rebound from its July low to around 22%, as Samsung Electronics and SK Hynix jumped by nearly 5%. Continued heavy AI spending by global technology companies, subdued US inflation and expectations of stronger shareholder returns have helped restore investor confidence following July’s historic rout, when leveraged positions were unwound and market volatility surged.
- US underlying inflation eased in July, with core CPI rising 0.2% month on month and 2.5% year on year, its slowest annual pace since March 2021. Overall inflation was 3.4%, Bureau of Labor Statistics data showed on Wednesday. However, Cleveland Fed President Beth Hammack said on Monday that several rate hikes may ultimately be needed to return inflation to the Fed’s 2% target.
- Oil tankers have continued to exit the Persian Gulf despite persistent threats and little progress toward reopening the Strait of Hormuz. As much as nine million barrels a day are transiting the strait as US escort capacity increases. The oil price remains up more than 40% this year, while the International Energy Agency (IEA) expects the 2026 supply deficit to widen to its largest in five years. Barring another major development in the Iran conflict, prices are expected to remain within an $80-to-$90-a-barrel range.
- US small-business sentiment rose to an 11-month high in July, with the National Federation of Independent Business Optimism Index moving above its 52-year average as hiring plans jumped to 20%, the highest since October 2022. However, labour shortages remain a constraint, with 36% of owners reporting unfilled positions, the highest since June 2025. The uncertainty index also rose to 91 amid concerns over the war in Iran, while inflation worries eased.
- Trump and his top officials are escalating economic pressure on Iran after nearly six months of military action have failed to force Tehran to capitulate. Treasury Secretary Scott Bessent said on Thursday that the US will announce unprecedented measures aimed at economically isolating Iran next week, alongside the continued blockade of its ports. Iran, meanwhile, is reshaping its military around a more aggressive “offensive doctrine,” signalling preparations for a prolonged regional conflict as talks over the Strait of Hormuz remain stalled. While Iran has said an agreement with Oman on a shipping route through the strait is close, no deal has yet been announced.
- Global oil reserves are being depleted as the US-Iran war enters its sixth month, with Saudi Aramco estimating on Thursday that 2.6 billion barrels of supply have been lost since the conflict began. Government-held stocks among IEA members have fallen below a billion barrels, while US strategic reserves are at their lowest since 1983. With US officials expecting supply disruptions to persist through 2027, shrinking reserves and leaving the oil market increasingly vulnerable to further shocks.
- Nvidia has enlisted Apollo, Blackstone, BlackRock, Brookfield, Goldman Sachs and KKR to help source $500 billion in financing for AI infrastructure, with debt deals using computing capacity as collateral expected to begin within months, it said on Monday. The funding will help customers finance the data centres, power stations and chips needed for the AI buildout, effectively making Nvidia’s computing power easier to access without cutting chip prices. However, the initiative adds to concerns over Nvidia’s growing role in financing its own ecosystem, potentially making future demand more dependent on credit conditions.
- Taiwan Semiconductor Manufacturing Company (TSMC) July sales jumped 45% to $14.5 billion, the company said on Monday, reinforcing signs that AI hardware demand remains strong despite concerns over data-centre overcapacity and the returns from massive AI investment. The chipmaker expects 2026 capital spending of $60 billion to $64 billion and full-year dollar sales growth of slightly more than 40%, reflecting confidence that AI chip demand will continue into 2027 and beyond. TSMC shares remain up more than 50% this year despite falling about 5% from their late-June peak.
- Tencent’s second-quarter revenue rose 11% to $30.4 billion, driven by a 17% increase in domestic gaming and a 22% jump in marketing sales as AI improved advertising across its WeChat ecosystem. Net income was flat, however, after a one-time accounting loss, the company said on Wednesday. The results kick off China’s Big Tech earnings season, with investors looking for evidence that heavy AI investment is translating into stronger growth and returns. Tencent’s Hong Kong-listed shares rose, while major shareholder Prosus fell as much as 4.4% in Europe.
- Microsoft is steadily reducing its presence in China, closing at least 15 branch offices and joint ventures over the past five years as Beijing promotes domestic technology and US export restrictions constrain its business. China now accounts for just 1.5% of Microsoft’s global revenue, but the company is maintaining a profitable niche helping Chinese companies such as ByteDance and Shein expand overseas using Western cloud technology, while retaining access to the country’s engineering talent. The strategy allows Microsoft to limit its exposure to growing US-China tensions without withdrawing from the market entirely.
- Global EV sales rose 9% to1.85 million in July, marking a fifth consecutive monthly increase, driven by a 33% surge in Europe to 450,000 vehicles, supported by incentives. Sales fell 5% in China to 980,000 and 27% in North America to 140,000 after US EV tax credits ended, according to Benchmark Mineral Intelligence data on Thursday. The contrasting performance highlights a widening divide between major EV markets, with Chinese automakers increasingly turning to exports to sustain growth.
- As at Thursday’s close the S&P 500 was 0.53% up for the week.
Local News
- Global investors bought a net R23.1 billion of South African government bonds in the first week of August, the largest weekly inflow since January, as the rand’s carry trade returned 2.5% this month, the most among 22 emerging-market currencies tracked by Bloomberg. Foreign demand has strengthened as elevated yields and the rand’s strong carry make South African debt increasingly attractive to global investors.
- South Africa’s unemployment rate rose to 33.6% in the second quarter, above economists’ 32.6% forecast, while youth unemployment climbed to 47.4%, Statistics South Africa data showed on Tuesday. The deterioration highlights the continued weakness of the labour market despite efforts to revive economic growth, intensifying pressure on the Government of National Unity to accelerate reforms to boost investment and job creation.
- South Africa’s mining sector contracted 2.7% in the second quarter, raising concerns about the impact on GDP growth. Production fell 4.4% year on year in June, with PGMs, coal and iron ore registering sharp declines, Statistics South Africa data showed on Thursday. Manganese, chromium and gold were bright spots, but the weakness comes as manufacturing also remained in contraction for a third consecutive month.
- South Africa’s Constitutional Court on Wednesday denied an application to appeal a lower court ruling that halted public hearings into whether President Cyril Ramaphosa should be impeached over his handling of a burglary at his game ranch. The impeachment committee said it will abide by the Western Cape High Court judgment, which prevents it from holding public hearings pending the outcome of Ramaphosa’s review application.
- The DA pledged on Saturday to end cadre deployment in municipalities, ring-fence water and electricity revenue for infrastructure investment and expand public-private partnerships as it launched its manifesto ahead of November’s local government elections. On Thursday, the party said it would lay criminal charges against 10 municipal managers it accuses of presiding over financial mismanagement and service-delivery failures, based on adverse Auditor-General findings. The DA said the cases are the start of a broader accountability drive, as it seeks to make failing municipal governance a central issue in the November elections.
- Transnet is seeking R35 billion ($2.2 billion) from National Treasury for infrastructure projects through to 2030, on top of R13 billion already allocated, as the state-owned ports and rail operator works to reverse years of underperformance. Transport Minister Barbara Creecy said on Thursday that the funding would finance upgrades and equipment needed to improve rail and port capacity. Fixing Transnet is critical to lifting economic growth, which has averaged less than 1% a year for more than a decade, with transport bottlenecks remaining a major constraint.
- South Africa’s repatriation of undocumented foreign nationals has cost the state almost R293 million, more than five times Home Affairs’ annual deportation budget, prompting the government to seek emergency funding and reimbursement from Malawi, Nigeria and Ethiopia. Home Affairs DG Tommy Makhode said on Tuesday that more than 89,000 people have been repatriated since June, mainly Malawians and Zimbabweans, as the government expands its enforcement system while acknowledging that removals alone will not address the reasons people migrate.
- Shoprite is stepping up the competition in AI-powered grocery shopping, adding a conversational assistant to Sixty60 that allows customers to shop using voice, text, and images, and learns from their purchase history. Pick n Pay introduced a similar feature in July, while Woolworths plans to launch an AI recipe assistant later this year. The move comes as Shoprite’s e-commerce revenue jumped more than a third to R25.5 billion, prompting the retailer to raise its earnings outlook by 14.7% on Wednesday. Shares gained as much as 5.4%, their biggest rise in 11 months.
- MTN announced on Tuesday that it will write down its Iranian assets, taking a 213-cent-per-share impairment charge as sanctions and the war in Iran make the business increasingly unviable. The move effectively ends the financial impact of an investment whose dividends and loans have been trapped since US sanctions were reimposed in 2018, while shielding future earnings from Iran-related currency and impairment losses. Excluding Iran, MTN’s core businesses in South Africa, Nigeria, Ghana and Uganda remain highly profitable and cash-generative.
- Gold Fields expects first-half earnings to rise by as much as 90%, driven by higher gold production and a stronger realised gold price, with attributable production up 12% to 1.26 million ounces. The miner said on Tuesday it expects full-year production at the upper end of its 2.4 million- to 2.6 million-ounce guidance range despite operational challenges at its Gruyere and Tarkwa mines, while also lowering its capital expenditure forecast.
- DRDGold expects annual earnings to almost double as record gold prices lifted revenue 42% despite production remaining largely unchanged. The company said on Thursday that headline earnings per share for the year to June are expected to rise between 85% and 95%, while production exceeded guidance and costs remained below target. The results highlight the strong earnings leverage gold producers are enjoying from elevated bullion prices.
- As at the time of writing, the rand was 0.2% weaker against the dollar, and the ALSI was 3.2% down for the week.
Sources: Dynasty, Bloomberg, TechCentral, Business Day, Moneyweb, BizNews, Reuters, ITWeb, Daily Maverick, etc.
