Nervousness returned to the debt and capital markets during August. Major indices were affected by expectations of tighter and more durable monetary policies. While most investors were expecting an accommodative speech during the annual Jackson Hole meeting, Jerome Powell surprised the markets with a firm stance to curb inflation regardless of the economic consequences.

And while headline inflation in the U.S. reflected a possible turning point by dropping from 9.1% to 8.5% in its latest reading, this was not the case for core inflation, which continued to be pressured largely by wage growth and is expected to show a very gradual improvement towards the Fed's 2% target.

As a result, the S&P 500, Nasdaq and IPC adjusted -4.24%, -4.64% and -6.70%, respectively, during the month, levels close to the lows of the year. Similarly, the debt markets suffered generalized declines as a consequence of the increase in interest rates, with the U.S. corporate bond index falling -2.93% during the month.

For their part, the European economies present a complex outlook of stagnation and inflation. Economic and geopolitical conditions continue to deteriorate in the region, mainly due to the lack of a resolution to the war between Russia and Ukraine. On the one hand, the energy crisis has intensified with a new shutdown of the Nord Stream 1 pipeline, which caused a sharp increase in the price of natural gas. On the other hand, droughts in the main rivers, such as the Rhine, complicate the transport of raw materials, affecting their supply and consequently inflation. This leaves the countries of the bloc on the brink of recession and vulnerable to the winter.

Finally, and as a result of the new downturn in the markets, the Investment Committee is evaluating entry levels to increase positions in both equities and fixed income. We believe that levels of 3,800 for the S&P 500 and a 10-year US bond rate of around 3.5% would be attractive given the current risk environment.