Market Overview
Global equity markets rose in August, as the improving outlook for U.S. interest rates buoyed risk appetites.
During the month, all eyes were on the U.S., where mixed economic reports fueled speculation about the Federal Reserve’s interest-rate policy path ahead of its September policy meeting. News early in the month that domestic job growth in July had slowed and hiring data for May and June had been revised downward raised concerns about the U.S. economy and led to a sell-off across global stock markets. Risk appetites improved after the latest reading from the closely monitored Consumer Price Index suggested that year-over-year price growth in July was slightly slower than expected, stoking hopes that the encouraging data would give the Fed more leeway to lower interest rates, which it had not done this year due to concerns that higher U.S. tariffs could worsen inflation. The market rally was short-lived, however, after a report indicated that year-over-year wholesale inflation in July accelerated to its fastest rate in over three years, suggesting importers have been absorbing the costs of higher U.S. import taxes. This dynamic is unlikely to continue in the long term, potentially exposing U.S. consumers to higher inflation as these costs are passed on to them.
Amid this confluence of economic developments, Fed Chair Jerome Powell gave a highly anticipated speech in late August at a gathering of central bankers, where he strongly hinted that a rate cut was imminent, citing vulnerability in the labour market. Powell also acknowledged that the Fed was now confronted with a “challenging situation” in which its dual mandate of containing inflation and keeping the labour market healthy was now in conflict. As a result, the Fed chief emphasized that the U.S. central bank would “proceed carefully,” suggesting that it would not cut rates quickly or by much if domestic economic conditions play out as expected. Markets reacted enthusiastically to Powell’s remarks despite the caveats. The yield on the benchmark 10-year U.S. Treasury note ended August at 4.23%, 14 basis points (bps) lower than a month earlier.
While the Fed’s interest-rate policy stance was the primary focus of markets during the month, investors were also monitoring the monetary policies of other major central banks. In Europe, the European Central Bank (ECB) is expected to hold interest rates steady at its policy meeting next month, as the eurozone economy showed signs of resilience and inflation in the common currency bloc hovered near the ECB’s 2% target. In the U.K., the Bank of England (BOE) lowered interest rates 25 bps, marking the fifth rate cut over the past year. However, with the latest data suggesting that domestic inflation in July had climbed to an 18-month high, expectations were growing that the BOE would pause any further rate cuts in the coming months. Elsewhere in Europe, Sweden’s central bank left interest rates unchanged but stated that a reduction was still possible later this year, as it grappled with above-target inflation and stagnant domestic economic growth. In August, the yield on the 10-year German Bund, Europe’s principal safe-haven asset, rose 3 bps, ending the month at 2.73%.
Meanwhile, in Asia, news that consumer inflation in Japan had cooled in July but was still well above the Bank of Japan’s 2% target raised expectations that the Japanese central bank would resume its rate-hiking campaign soon.
August also saw signs that the tech rally that helped to boost global stock markets over the past several months had lost momentum. Shares of companies leveraged to artificial intelligence (AI) came under pressure amid concerns about overspending on this technology, the stretched valuations of these index-heavyweight stocks, and competition from previously overlooked parts of markets around the world.
Notably, while U.S. trade policy remained top of mind for monetary policymakers, investors took a more optimistic view during the month. News that the U.S. had introduced new import taxes - with some rates as high as 50% - on roughly 90 countries after its trade-deal deadline had passed was met with a muted response from global stock markets. With the passing of the trade deadline, the average tariff rate increased to 17.7%, nearly double the 9.1% rate that was in place as of July. Investors also reacted indifferently to the news that the U.S. and China had agreed to extend their trade truce for another 90 days to November 10, as the world’s two largest economies continued to seek a deal.
With the new earnings season in full swing, investors were provided with a more complete picture of how company profits have held up amid a challenging macro environment. In the U.S., 82% of the companies in the S&P 500 Index that reported results topped consensus estimates, outperforming the long-term average of 67%. The second-quarter earnings growth rate is estimated to have increased 11.9% from a year earlier. In Europe, 45% of the companies in the STOXX 600 Index that reported results posted better-than-expected earnings, below the 54% that do so in a typical quarter. The second-quarter earnings growth rate is expected to have increased 5.7% from a year earlier. In Japan, 54% of the companies in the TOPIX that reported results posted positive earnings surprises, lagging the 55% beat rate over the past four quarters. The second-quarter earnings growth rate is estimated to have decreased 16.5% from a year earlier. In Hong Kong, 69% of the companies in the Hang Seng Index that reported results registered better-than-expected earnings, outpacing the 55% beat rate over the past four quarters. The second-quarter earnings growth rate is projected to have increased 0.4% from a year earlier.
Against this backdrop, equity markets in the developed and developing worlds both gained in August, with the former outperforming the latter. In the U.S., the S&P 500 rose but modestly lagged the broader global benchmark, as expectations that the Fed would soon lower interest rates led some investors to rotate away from index heavyweight Big Tech stocks toward cheaper parts of the U.S. stock market. Across the Atlantic, the pan-European STOXX 600 outperformed, as signs that the eurozone economy was more resilient than anticipated boosted risk appetites. In Japan, the TOPIX outperformed, as greater clarity about the impact of U.S. tariffs sparked renewed optimism about the outlooks for economic growth and corporate earnings. Meanwhile in China, the CSI 300 jumped, as a regulatory push to boost shareholder returns and attractive valuations continued to lure local investors.
Materials was the best-performing sector in August, as shares of gold miners rose in sympathy with the rise in the price of gold amid expectations that the Fed could lower interest rates next month. Utilities was the worst-performing sector, as the stock price of electric power producers fell on concerns that companies linked to AI were overspending on the build out of infrastructure for this technology.
Outlook
Increased uncertainty surrounding the U.S. economic outlook and key policy measures, including specifically tariffs, continue to sow volatility in markets and have interrupted what had previously been, in our opinion, a clearer line of sight towards decelerating inflation and strong likelihood of success achieving an economic soft-landing. On the other hand, greater likelihood that the U.S. Federal Reserve will begin to cut interest rates sooner rather than later – possibly as early as this month – has refreshed a tailwind for companies in industries that typically exhibit a high degree of sensitivity to cost of capital.
While markets continue to wrestle with considerable uncertainty, we expect Infrastructure to continue to exhibit critical defensive qualities and remain an invaluable diversification component for investment portfolios given the essential nature and real asset characteristics of the asset class. In contrast to businesses and industries where valuation is underpinned primarily by revenue growth and often highly competitive profit margins, critical infrastructure derives considerable valuation support from its high fixed cost of investment and high visibility, high margin cash flows collected over long periods of time [to recoup the initial capital outlay].
This important combination of characteristics tends to lend itself to superior defensive positioning, in our view, against global trade uncertainty, inflationary pressure, economic recession and market volatility. On the risk side of the ledger, however, we include typically above-average levels of balance sheet leverage and sensitivity to interest rates.
From a sectoral standpoint, we see a number of multi-year critical infrastructure investment trends likely to continue largely undeterred by recent tariff and trade uncertainty. Electrification and the growing demand for power to accommodate the artificial intelligence (AI) / Data Center development surge serves as an example, in our view. Utilities was a key contributor to performance in 2024 and has been as well in 2025. While we maintain a favourable sector outlook for utilities and foresee scope for upward earnings revision, valuations have also re-rated higher, and we do not expect the same pace of returns for utilities to continue in the U.S. On the other hand, we continue to find very compelling valuations and opportunities in utilities outside the U.S.
Outside of the utilities sector, we believe U.S. midstream energy, namely oil & gas storage and transportation, continues to offer a compelling combination of attractive valuation and improved capital allocation discipline. And while increased uncertainty regarding global trade and the risk of global recession now weighs more heavily on energy prices and the sector earnings outlook generally, the vast majority of the cash flows associated with the portfolio’s midstream holdings are fee-based and enjoy strong support from take-or-pay contracts and spread differentials at key access points.
Elsewhere within the portfolio, we see an abundance of opportunities stemming from large-scale investment in transportation infrastructure, information technology and energy development & security, leading to increased demand for materials, capital goods and industrial equipment.
We believe the portfolio remains well-positioned to take advantage of these opportunities in real asset infrastructure businesses as well as key enablers, including materials, services, and technologies, that will both facilitate and benefit from increased investment in infrastructure.
The information contained herein provides general information about the Fund at a point in time. Investors are strongly encouraged to consult with a financial advisor and review the Simplified Prospectus and Fund Facts documents carefully prior to making investment decisions about the Fund. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Mutual funds are not guaranteed; their values change frequently and past performance may not be repeated.
Information and opinions presented have been obtained or derived from sources believed by Lazard Asset Management LLC or its afflliates (“Lazard”) to be reliable. Lazard makes no representation as to their accuracy or completeness. All opinions expressed herein are as of the published date and are subject to change.
Allocations and security selection are subject to change. The performance quoted represents past performance. Past performance is not a reliable indicator of future results. Mention of these securities should not be considered a recommendation or solicitation to purchase or sell the securities. It should not be assumed that any investment in these securities was, or will prove to be, profitable, or that the investment decisions we make in the future will be profitable or equal to the investment performance of securities referenced herein. There is no assurance that any securities referenced herein are currently held in the portfolio or that securities sold have not been repurchased. The securities mentioned may not represent the entire portfolio.
Equity securities will fluctuate in price; the value of your investment will thus fluctuate, and this may result in a loss. Securities in certain non-domestic countries may be less liquid, more volatile, and less subject to governmental supervision than in one’s home market. The values of these securities may be affected by changes in currency rates, application of a country’s specific tax laws, changes in government administration, and economic and monetary policy. Emerging markets securities carry special risks, such as less developed or less efficient trading markets, a lack of company information, and differing auditing and legal standards. The securities markets of emerging markets countries can be extremely volatile; performance can also be influenced by political, social, and economic factors affecting companies in these countries.
Securities and instruments of infrastructure companies are more susceptible to adverse economic or regulatory occurrences affecting their industries. Infrastructure companies may be subject to a variety of factors that may adversely affect their business or operations, including additional costs, competition, regulatory implications, and certain other factors.
Certain information contained herein constitutes “forward-looking statements” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “target,” “intent,” “continue,” or “believe,” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events may differ materially from those reflected or contemplated in such forward-looking statements.
Published on September 17, 2025.