Quarterly Outlook
Q3 Investor Outlook: Beyond American shores – why diversification is your strongest ally
Jacob Falkencrone
Global Head of Investment Strategy
Investment and Options Strategist
Markets entered August on shaky footing after a volatile week marked by mixed earnings, aggressive tariff moves from President Trump, and a disappointing U.S. jobs report. A flurry of tech results (Amazon, Meta, Microsoft, Apple) collided with escalating trade tensions and renewed rate-cut hopes. Investors reeled from a surprise miss in payrolls growth, driving a surge in bond prices and volatility. Meanwhile, cryptocurrencies softened and commodities were whipsawed by policy headlines and macro data.
Risk-off sentiment returned, reversing July’s optimism.
US stocks began the week near all-time highs but closed Friday sharply lower. The S&P 500 -1.6% on Aug 1, Nasdaq -2.2%, and Dow -1.2%, as Amazon dropped -8.3% and Apple fell -2.9%, despite strong Meta (+11.5%) and Microsoft (+8%) earnings earlier in the week. Trump’s sweeping new tariffs and a soft payrolls print drove risk aversion.
European indices also sank Friday: STOXX 50 -2.7%, DAX -2.7%, and CAC 40 -2.9%, hurt by poor results from Ferrari (-11.7%) and AB InBev (-11.6%).
UK’s FTSE 100 -0.7% on Friday but held near record highs, up 4.2% for July, lifted earlier by Rolls-Royce and Shell.
Tech earnings clashed with macro risk, triggering a sharp equity pullback.
Volatility surged midweek and spiked into Friday’s close. The VIX hit 20.38 on Aug 1, rising +21.9%, with short-term metrics like VIX1D +18.9% and VIX9D +28.9% showing stress. Despite that, VIX futures only at 19.6 suggest some market relief ahead.
SPX options implied a ±58-point move for Aug 2, reflecting heightened caution but not panic.
Volatility jumped on weak payrolls and earnings volatility, but longer-term fear remains contained.
Crypto prices followed risk markets lower, but institutional flows persisted. Bitcoin held above $114,000, while Ethereum rebounded +1.0% to $3,532. Still, IBIT -3.2% and ETHA -6.7% fell on outflows. Altcoins like XRP and Solana saw minor gains. Crypto equities slumped: COIN -16.7%, RIOT -8.1%.
Traders are watching Wednesday’s US CPI print for the next big macro driver.
ETF flows support long-term sentiment, but macro shocks are weighing on prices.
Bond markets rallied sharply after Friday’s weak jobs report. The 2-year UST yield fell intraday from 3.96% to 3.66%, while the 10-year dropped to 4.20%, marking the steepest rally since May. Fed cut odds for September jumped above 85%.
High yield spreads widened to 301 bps, the highest in over a month.
Treasuries surged on payroll disappointment, fueling rate cut bets.
Copper futures plunged over 23% as Trump exempted refined copper from tariffs. Gold bounced from a sub-$3,300 dip to retest the $3,450 ceiling, while silver fell below key supports.
Oil was volatile: Brent dipped below $72 after the OPEC+ hike, while grain prices sank on strong harvest prospects.
Tariff exemptions and recession fears jolted metals; gold regained safe-haven interest.
The US dollar dropped sharply on Friday, especially vs JPY and EUR. USDJPY fell from 150.90 to 147.30 on plunging yields.
The EURUSD rallied from 1.14 to 1.1588 after Trump fired the BLS head, citing data manipulation.
The JPY was the strongest G10 currency, boosted by falling US rates and BoJ inaction.
Sharp FX reversals followed rate cut repricing and political uncertainty.
Markets ended the week on a defensive note, rattled by a disappointing U.S. payrolls report, aggressive new tariffs, and lingering uncertainty around global trade and interest rates. While strong tech earnings initially lifted sentiment, these gains quickly evaporated under macro pressure. Volatility spiked, bond yields plunged, and the dollar reversed course—all reflecting a sharp shift in investor expectations. With the odds of a September Fed rate cut now above 80%, the coming week’s economic data and central bank speeches will be pivotal in shaping the path ahead.
The mood has turned cautious—rate cuts are back in focus, but so is recession risk.
More from the author |
---|