The Cambridge Weekly – 26th August

US Equity Market:

US equity markets declined last week, driven by investors selling out of expensive AI stocks that have soared in recent months. There are growing concerns that the optimism which fuelled high valuations in tech and AI stocks might not materialise into earnings. A study from the Massachusetts Institute of Technology (MIT) found that 95% of companies surveyed have yet to see returns on their investments in generative AI, while OpenAI CEO Sam Altman said that some investors were ‘overexcited’ about the technology. As of Friday’s close, the tech-heavy NASDAQ Composite was down 0.87%, whilst the S&P 500 secured modest progress of 0.3%.

UK Equity Market:

The FTSE 100 was up 2.0% last week, achieving an intra-day record high of 9,355 last Friday. UK equities are attracting capital from global investors due to their cheaper valuations relative to the US, supported by strong UK GDP growth in the first half of 2025. Despite poor inflation data emerging last week – which weighed on homebuilders and defence stocks – the FTSE remains relatively resilient due to its heavy weighting in energy and financials, sectors that tend to perform better during periods of high inflation.

Inflation, Interest Rates and Bond Markets:

Markets are currently pricing in an 85% chance of a 25bps interest rate cut at the next Fed meeting in September.

UK Consumer Price Index (CPI) inflation data came in higher than expected last Tuesday morning; the reading showed that annual inflation for July was 3.8%, the highest in the past 18 months. This came in higher than the 3.7% expected by economists and will likely slow down the pace of interest rate cuts from the Bank of England. Services inflation, one of the key metrics the Bank of England (BoE) use to assess monetary policy decisions, also came in higher than expected at 5.0%. Somewhat surprisingly, the interest rate sensitive 2-year gilt yield fell 5 bps, highlighting the fact investors already heavily scaled back expectations of further interest rate cuts after the recent BoE meeting at the beginning of August.

What’s on the horizon:

The US Bureau of Economic Analysis (BEA) will release preliminary second quarter Gross Domestic Product (GDP) figures. The data is revised two more times before the figure is finalised, however the first preliminary figure usually has the biggest influence on markets. Investors will be closely watching this to see if effects from tariffs are starting to seep through into the US economy.

The Statistics Bureau of Japan is set to release inflation data for the Tokyo region on Thursday. The figure is widely used as a leading indicator for inflation across the whole of Japan, since it is published a couple of weeks before the national data.

This material has been written on behalf of Cambridge Investments Ltd and is for information purposes only and must not be considered as financial advice. We always recommend you seek financial advice before making any financial decision.

Past performance is not a guide to future performance.

The value of your investments can go down as well as up and you may get back less than you originally invested.
Source of financial market data: MorningstarDirect.