Berenberg Guardian

Monthly market comment

In August, global equities were primarily driven by interest rate markets. In the first half of the month, equity markets posted strong gains, buoyed by falling interest rate expectations on the back of weaker labor market data and a lower inflation rate. In the second half of the month, alongside rising energy prices, the narrative shifted: yields on 30-year US Treasuries rose above the 5.3% mark for the first time since 2007, and Scott Bessent felt compelled to curb the yield increase at the long end of the curve by announcing increased buybacks. Equity markets proved remarkably resilient during this period. Not least, the elevated yields also reflect strong nominal economic growth, which was further mirrored in a robust Q2 earnings season. The S&P 500 finished the month up 3%, while the Euro Stoxx 50 gained 2%. The 20-day realized volatility for both indices stood below 10% at month-end. Particularly noteworthy, however, was the dynamic between volatility and price performance: on positive days, the S&P 500 realized more than twice as much volatility as on negative days, and the 1-month VIX beta ranked in just the 4th percentile since records began. In an environment of rising equity prices and falling volatility, the Berenberg Guardian recorded slight losses of 0.3%. However, favorable volatility levels allowed the strategy to significantly scale up its hedges over the course of the month, leaving the Berenberg Guardian well-positioned for September—a seasonally particularly weak month.