Markets took a step back in August as sentiment shifted surrounding Fed policy
- Fitch downgraded the United States’ credit rating to AA+ from AAA at the start of the month.
- Market volatility continued through the month and most major asset classes experienced negative returns. Higher interest rates due to sentiment shifting to a “higher-for-longer” mentality by the Federal Reserve was a main culprit for weak performance.
- Commercial real estate has garnered a lot of headlines as the “next shoe to drop” but taking a deeper dive reveals the asset class may be more resilient than it appears on the surface.
Every month this year has brought major events for investors to digest, and August was no different. The month started with Fitch downgrading the United States’ credit rating to AA+ from the top-quality AAA rating. The rating agency cited “rising debt burdens” and “erosion of governance” among the key drivers behind the decision. While this creates noise in the short-term, historically it has not impacted longer-term asset class returns. Ultimately, most asset classes did end the month lower. Rising rates were a main driver of the lackluster results across asset classes. Favorable economic data and more positive sentiment on the potential for a soft landing, coupled with a Federal Reserve that is willing to stay higher-for-longer, fueled the interest rate move higher.