Markets have been providing returns that typically fit with long-term annual returns, up 0.5% in August for example. However, what is atypical is that most monthly gains are generally far higher or lower than the August’s middle of the road figure.

The laissez faire feeling in markets is sightly perplexing given more than a few factors are potentially undermining economic confidence. First and foremost was the dirt dug on Fed Governor Lisa Cook. For those without a CNBC, Bloomberg or FT subscription, Lisa Cook has been accused by the Trump administration of committing mortgage fraud (claiming two properties were her primary residence – a theme of recent weeks?). Fed governors are appointed with a dynastical fourteen-year term, they cannot be sacked by the President or Congress, only removed by the President for “due cause”. Trump wants lower interest rates. The current Fed members are not obliging therefore the administration is looking for any skeletons to replace members.

Central banks generally started as arms of the executive. The Bank of England was set up to fund a war against the French. The first incarnation of the Fed was set up to fight the British and the latest to fund WWII efforts, however their function has changed from war financing to a bank regulation, lender of last resort and balancing economic growth with inflation through setting interest rates. The fear with a politicised Fed is they will forgo controlling inflation in favour of making the executive popular, leading to a weaker dollar and higher borrowing costs. This may already be happening as long term (30 year) government borrowing costs increased over the month. Long dated UK and French government bonds also rose as fears that fiscal deficits are too wide and concerns over both governments.

Economic news was generally poor, the IMF, who are as bad as everyone else at making predictions, downgraded global growth for 2025 from 1.8% to 1.5% for advanced economies and 3.2% to 3.0% for the whole world. Similarly, US employment data is looking weaker. July’s non-farm payrolls show the US economy added 73,000 below the 110,000 expected but more significantly 253,000 jobs were written off in revisions to prior months reports. The stats suffer from fundamental weakness that it is reliant on businesses responding to surveys, when they do not respond the Bureau of Labor Statistics guess. While large businesses will likely have HR teams able to compete the return in a timely fashion, smaller business does not and it is unlikely to be the business owner/managers top priority. Given smaller businesses are generally most sensitive to economic changes they are likely to cut employees first, making the stat limited and prone to large change. One caveat to the negativity surrounding this data is Trump has changed the population trends in the US. He has been successful in stopping immigration and enacting deportations. The old rule of thumb therefore that 100,000 jobs added figure means the employment rate is stable may no longer be true, a far lower number of 40,000 to 50,000 may now mean a stable employment level.

In the corporate world recent company results showed that revenue growth slowed to about 3.5%, barely higher than inflation. Businesses are feeling the impact of low business and consumer confidence. As usual one exception to this was Nvidia who saw revenues increase to $47bn per quarter and expected to rise to $54bn next quarter. Year on year growth has exceeded 50% for the ninth straight quarter. At over $4tn market cap the company is now a similar size to the entire UK stock market. Nvidia remains expensive with price to sales and price to earnings ratios at 23x and 40x.

Given the deteriorating economic and investment background and relatively high valuations in large US listed companies we are positioning more defensively.

We also took the decision to replace the fund manager on the Sentinel Growth fund during September, as we felt that future market conditions would not suit the incumbent manager’s investing style.

The decision was taken to retain Artemis as the investment house, but to move management to their SmartGARP team, with Raheel Altaf taking over as lead fund manager. The team follow a sentiment driven approach, where they look for decent quality stocks, but understand there is little point in buying them, if they or their sector are out of favour.

The SmartGARP team’s approach is far more in line with where we currently believe market conditions to be. The sentiment driven approach is a decent foil for the Enterprise fund, providing the differential between the two funds that we have been looking for over the past 12 months.

We believe this is a positive development for the overall Sentinel proposition and IFS blends and look forward to seeing how the new fund manager and team perform.

Past performance is no guarantee of future returns. The value of investments may fall as well as risk and is not guaranteed.

Please note that this has been prepared for information purposes only and does not constitute advice or guarantee investment returns.