The AI Rally has Lost Steam. Will Markets Start Trading Based on Fundamentals?

Major Indices Decline in August.

Amid inflation concerns and fears that the Federal Reserve will keep interest rates higher for longer than expected, all three major US stock market indices were down in August. Broad-based emerging market equities (-6.1%) were among the worst performers, followed by US small-caps (-4.2%) and international developed equities (-3.8%). Aside from high yield credits (+0.2%), bonds were mostly down as investment grade corporates fell 1.2%, Treasury Inflation Protected Notes declined 0.8%, and municipal bonds decreased 0.8%. Commodities produced mixed returns as crude oil gained 2.6% while silver, gold, and broad-based commodities were down (-1.3%, -1.3%, and -1.0%, respectively).