Record highs offer opportunity… and a warning

Global equity markets have reached fresh record levels, supported by softer US inflation figures and growing expectations that the Federal Reserve will cut interest rates in September.

It’s an impressive run, but I believe the enthusiasm may be running ahead of the underlying reality.

August rallies are not unusual, and they often have more to do with seasonal trading dynamics than with a meaningful shift in economic conditions.

Lower volumes, repositioning by institutional investors, and a tendency for sentiment to swing quickly can all magnify price movements during the summer. This year’s surge has the hallmarks of that pattern.

The latest moves were fuelled by data showing inflation rising less than forecast, easing fears that tariffs were adding upward pressure to consumer prices.

On Tuesday, the S&P 500 closed 1.1% higher at 6,445.76, the Nasdaq gained 1.4% to 21,681.90, and the Dow Jones added 483 points to finish at 44,458.61. The Russell 2000 outperformed with a jump of nearly 3%, as traders positioned for cheaper credit ahead.

Futures markets now put the probability of a September rate cut near certainty, and some are even betting on a more aggressive 50 basis-point move after US Treasury Secretary Scott Bessent called for stronger action. But rate expectations can shift rapidly. A single data release, or a change in tone from policymakers at the Jackson Hole symposium later this month, could reset the market’s assumptions.

Opportunity and risk – discipline is key

Earnings season is also sending mixed signals. Cava shares fell more than 22% after the restaurant chain reported weaker-than-expected revenue growth and cut its full-year forecast. In a truly broad-based rally, we would expect to see consistent earnings beats and upgraded guidance across sectors – something the current market has yet to deliver.

Global economic conditions remain uneven. The US economy is performing better than many expected earlier this year, but Europe’s recovery is still patchy, Asian markets remain volatile, and US-China trade negotiations continue against a backdrop of tension, particularly in technology and semiconductors. Any deterioration in these areas could quickly undermine investor confidence.

This is why I see the current market as offering both opportunity and risk.

Participating in the upside is possible – but only with a clear understanding of what’s driving the move and a willingness to manage exposure if conditions change. Price action driven by sentiment and positioning can reverse just as fast as it climbs.

August often gives the illusion of stability before reality reasserts itself in the autumn. For investors, this is a time to remain disciplined, assess whether portfolio gains are built on solid ground, and ensure that risk management plans are in place. It’s one thing to benefit from short-term momentum; it’s another to depend on it.

Nigel Green, is the group CEO and founder of deVere Group, an independent global financial consultancy.

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