Written by: Salvatore Bruno and Mark LacuestaThe U.S. equity marketsposted positive returns during a period where, on balance, the scales could have tipped in either direction. Apple and Amazon both reached the trillion-dollar market cap milestone, Turkey’s Lira crisis touched off worries of an emerging market (EM) contagion, rhetoric regarding trade and tariffs took a more aggressive tone, the Jackson Hole Fed symposium confirmed the Feds gradual rate hike stance, but cautioned over the weak wage inflation hovering over the tight labor market, and Elon Musk caused a stir with his tweet about taking Tesla private.The U.S. large cap and small cap equity markets continued their YTD upward climb by posting convincing positive returns, while both international developed and emerging marketscontinued their YTD slide, driven by weakness in Europe, Turkey, and China. Apple became the first public company to reach the $1T market capitalization summit, followed later in the month by Amazon.com. The FAANGs aside, U.S. small caps continue to outperform large caps in 2018 by benefiting from both tax-reform and the evolving trade policies.In the debt markets, all major fixed-income sectors were also positive in August, with the medium and long end of the treasury curve outperforming the near-term tenor and high yield credit continuing to outperform investment grade, as it has done throughout the year. The yield curve has continued to flatten in August, with short-term rates rising, while points beyond the two-year key rate have fallen. The positive carry offered by long-term treasuries and the positive price movement from the drop in long-term rates provided a boost to performance.U.S. capital markets have been resilient despite some of the rising tariff tensions involving China, as well as other trading partners. The President announced plans to increase the initial steel and aluminum tariffs on Turkey, which resulted in an in-kind response by Turkey to tax additional U.S. exports of autos, alcohol, and tobacco.The labor market continues to remain tight with unemployment below 4.0% and jobless claims trending downward and job openings continuing to rise. Despite the lack of any slack in the labor market, wage pressure has remained muted. With second quarter gross domestic product (GDP) revised up 0.1% to 4.2%, personal consumption expenditures (PCE) trending upward to 2.0%, and CPI up 2.9% YoY, the Jackson Hole symposium did queue up the possibility of a rate increase at the next meeting, but signaled that the risk of the economy overheating would be less likely if wage growth remained subdued.Aggregate Hedge Fund returns in August were positive in August, with five of the eight hedge fund strategies posting positive returns. Equity Hedge, Merger Arbitrage, and Event Driven strategies posted negative returns in the month.1Related: Should Investors Be Worried About the Midterm Election Results?