In the US, equity markets rose last week as a sell-off in technology stocks was offset by dovish statement from Federal Reserve chair Jerome Powell at the Jackson Hole Symposium. The move lower was initially prompted by a report from the Massachusetts Institute of Technology, which found that 95% of organisations are realising no return on their investments in generative AI, including technologies such as ChatGPT. The report also noted that only 5% of AI pilot projects are generating significant value, while the remainder have had no material impact on profits or losses. The sell-off, which took place last Wednesday and continued into Thursday, saw NVIDIA fall 3.5%, Palantir drop more than 9%, and AMD decline 5.4%. NVIDIA also releases earnings this coming Wednesday, which will be the most closely watched earnings call of this quarter. Markets also reacted to the release of minutes from the Federal Reserve’s July meeting, where two members dissented for the first time since 1993. The minutes had limited market impact, broadly reaffirming Chair Jerome Powell’s comments on upside inflation risks from tariffs, while also stressing that inflation risks currently outweigh labour market concerns. However, at Jackson Hole, Powell intimated that a cut was coming in September, as weakening labour market conditions had lead to a change in the monetary policy outlook. In corporate news, Black Hills and NorthWestern Energy agreed to merge into a single entity, creating an energy and utility company worth approximately $14.5 billion. The merger is expected to support investment in grid infrastructure upgrades amid record US power demand, while also targeting long-term earnings per share growth of 5% to 7%. Also in the energy sector, the Tennessee Valley Authority (TVA) signed a nuclear power agreement with Google and Kairos Power, a small modular reactor (SMR) company, making TVA the first US energy provider to partner with an SMR developer. Kairos will build a reactor with capacity of 50 megawatts, supplying TVA and powering Google’s data centres in Alabama and Tennessee. Elsewhere, Vanguard, one of the world’s largest investment managers, announced plans to launch its first actively managed US equity ETFs, focused on dividend growth, growth stocks, and value strategies. Finally, Johnson & Johnson revealed a $2 billion investment in US manufacturing at its North Carolina facility, alongside plans for additional sites nationwide in the coming years. For the week, the S&P 500 closed higher, up 0.21%, while the NASDAQ closed lower, down -0.57%, pressured by weakness in Big Tech stocks.
In Europe, markets rose last week as hopes for a ceasefire between Ukraine and Russia were boosted by a series of meetings between European leaders and US President Trump, who had met with President Putin in Alaska the previous weekend. While broader sentiment lifted equities, the Stoxx Europe Aerospace and Defence Index declined by more than 3%, with defence stocks such as Rheinmetall also falling as the prospect of a ceasefire dampened demand for defence contractors. In corporate news, Mediobanca, one of Italy’s largest banking groups, secured approval from the European Central Bank to acquire Banca Generali, a deal that would create the country’s second-largest wealth manager. However, on Thursday, Mediobanca shareholders rejected the takeover plans, with two of the bank’s largest investors voting against the acquisition. This proposed deal comes shortly after Santander’s agreement to acquire Sabadell, underscoring the trend towards greater consolidation in the European banking sector. On the economic front, Eurozone PMIs were released on Thursday, showing that overall business activity remained in expansionary territory for the third consecutive month. For the week, the Eurostoxx 50 and STOXX 600 closed higher, up 0.79% and 1.46% respectively.
In the UK, the FTSE 100 climbed to a record high on Wednesday, despite higher-than-expected inflation data and a decline in defence stocks on hopes of a ceasefire in Ukraine. On the economic front, UK manufacturing and services PMIs were released last week, painting a mixed picture of the domestic economy. Manufacturing PMI fell to 47.3 in August from 48.0 in July, signalling continued contraction. By contrast, services PMI rose to 53.6, beating expectations, with stronger new orders driving demand. For the week, the FTSE 100 closed 1.99% higher.
