UK defence stocks get a boost

September is the cruellest month, for Wall Street at least. Historically it’s the worst month for the S&P 500, Dow Jones and the Nasdaq.

Perhaps as a foretaste of seasonal volatility stocks fell Friday as US tech – specifically chipmakers – wobbled, with the Nasdaq down more than 1% for the session.

Nvidia was down more than 3% to extend its weakness in the wake of earnings. This seemed to weigh on Asian equities on Monday, but Hong Kong rallied 2% on a huge surge in Alibaba shares, which jumped 15% on its AI revenue growth.

Alibaba is also developing a new AI chip – viewed as a negative development for NVDA et al, but there is a lot going to the mix here.

Nevertheless, the S&P 500 notched its fourth winning month in a row in August and notched a series of record highs before the slip-up on Friday – which may have been a case of investors taking some chips off the table ahead of a long weekend in the US for the Labor Day holiday. Here’s our look at the best and worst investment themes last month.

European equity markets had a good run too and trade broadly higher this morning. French shares are stabilising after last week’s drop on political worries – the government is almost bound to fall for the third time in a year when a confidence vote is held a week today. For political chaos read economic weakness. The euro doesn’t mind at all and is showing strength above 1.17 against the dollar on broad greenback weakness.

The FTSE 100 is up around a quarter of a percent early on Monday, having put in a modest gain for the month of August, with banking stocks sliding on the last day to take some shine off the performance. Today, BAE Systems is riding higher after the UK secured its largest ever warship deal from Norway, with the £10bn deal supporting its Glasgow shipyards for years to come. Babcock and Rolls-Royce are also getting in on the action, with all three rising over 2% on the news. I looked at this sector here. Precious metals miners Endeavour and Fresnillo, which have had thumping good years, rose with gold trading near a record high almost touching $3,500, and silver at a 14-year high above $40, in the wake of US inflation data and the persistent chipping away at the Fed by the White House.

US inflation rose, with the core PCE reading on Friday climbing to 2.9% year-on-year, in line with expectations but – at the highest since February – still underlining concerns that a rate cut from the Fed could further stoke inflationary pressures. As gold rose the dollar weakened some more, with DXY down below 98. Markets are underestimating both the chances that the Fed will not cut rates this month and, more importantly, the impact of the President’s ongoing attacks on the central bank. Everything is supporting precious metals.

Most tariffs were ruled illegal by a US court. This could be good news in the long run but that is only going to increase uncertainty for businesses in the near term. Multi-year investment decisions around supply chains and so on will be delayed. We don’t need to get into the weeds with the details of the US court ruling – sectoral tariffs are ok, but sweeping reciprocal tariffs are not. It will go quickly to the Supreme Court, which it should be noted has a lot of Trump appointees.

This week…

Nonfarm payrolls data at the end of the week will be crucial for guiding expectations for the Federal Reserve’s next policy decision due in a fortnight. Last month’s report was marked by a big decline in hiring activity and some steep downward revisions to the prior two months. But does the Fed need such a strong pace of hiring given the decline in labour supply to ensure it meets its full employment mandate? The unemployment rate, which did tick up to 4.2% last month, will be key. On the political front Reform UK, which currently leads in the polls, kicks off a keenly anticipated conference in Birmingham. Before this we hear from several Bank of England rate setters ahead of the next policy meeting. The Q2 earnings season is nearly over but we will hear from Dow component Salesforce and semiconductor firm Broadcom.