Investment Commentary - August 2026

Financial markets were generally stronger in August, with resilient economic data and a positive corporate earnings season supporting risk assets. This represented a reversal of some of the trends seen in July, particularly within technology stocks, where semiconductor companies recovered following the previous month’s sharp declines. However, the backdrop for bond markets remained more challenging. Longer-term government bond yields rose in several major economies as investors continued to focus on inflation risks, fiscal policy and the prospect that interest rates could remain elevated for longer. Commodity markets were also strong, particularly precious metals and agricultural products, while the US dollar weakened modestly.

Global equity markets delivered positive returns during August. In the US, the S&P 500 gained +2.7%, reaching another record high during the month, while the Nasdaq rose +4.0%. Technology stocks returned to favour following their weakness in July, supported by another strong earnings season and continued investment in artificial intelligence infrastructure. The information technology component of the S&P 500 gained +6.2%, although performance among the largest technology companies remained relatively varied.

Corporate earnings continued to provide support for equity markets. Strong results from several of the largest technology companies helped reassure investors that demand associated with AI remained robust, while earnings growth also showed signs of broadening beyond the technology sector. Economic data remained supportive, with business surveys in both the US and Europe indicating continued expansion. Against this backdrop, both global growth and value stocks returned +2.6%, while smaller companies gained +2.9%.

European equities also advanced, although returns generally lagged the US. The STOXX 600 gained +0.5%, while Germany’s DAX rose +2.5%. The UK market was relatively subdued following its strong performance in July, with the FTSE 100 gaining +0.2%. European banks, which had been among the strongest performers during the previous month, rose a further +0.9%.

Asian markets recovered from their July weakness. Japan’s Nikkei gained +3.1%, while emerging market equities rose +3.4% overall. The Shanghai Composite advanced +4.1%, although economic data continued to point to weakness in Chinese domestic demand. Technology-related markets also recovered as sentiment towards the AI investment cycle improved, although performance across individual companies remained uneven.

Government bond markets produced mixed returns. Stronger economic data and continued inflation concerns placed upward pressure on longer-term yields, with the 10-year US Treasury yield reaching an 18-month high of 4.75% during August. Longer-dated yields rose even further during the month, with the 30-year Treasury yield briefly reaching 5.31%, its highest level since 2007. However, yields subsequently fell back after the US Treasury announced plans to increase its purchases of longer-dated government bonds.

The Federal Reserve left interest rates unchanged, although comments from Chair Warsh at the Jackson Hole symposium reinforced expectations that policymakers remained concerned about inflation. Markets ended August continuing to anticipate a reasonable likelihood of a rate increase in September. Despite the rise in yields earlier in the month, US Treasuries returned +0.3% overall.

European government bonds were weaker. German Bunds declined -0.5% as the 10-year Bund yield rose to 3.32%, its highest level since 2011. Broader euro sovereign bonds returned -0.6%. UK gilts proved more resilient, producing a small positive return of +0.1%. Japanese government bonds also came under pressure as inflation and a looser fiscal backdrop increased expectations that the Bank of Japan could raise interest rates.

Credit markets generally performed better than government bonds. US high yield returned +1.0%, while sterling high yield gained +1.5%. Investment grade markets also recovered from their July declines, although returns were more modest. Credit spreads remained relatively well supported by the positive economic and corporate earnings environment, with the higher income available from high yield bonds providing an additional contribution to returns.

Commodity markets delivered some of the strongest returns during August. Precious metals performed particularly well, with gold rising +9.7% and silver gaining +15.6%. Gold benefited from continued inflation concerns and renewed attention on the implications of US fiscal and monetary policy, particularly following the Treasury’s decision to increase its purchases of longer-dated government bonds.

Agricultural commodities were also strong. Wheat rose +18.3%, corn gained +16.8% and sugar increased +21.5%, reflecting a combination of geopolitical disruption and concerns over weather-related supply risks. Energy markets were considerably calmer than in July. Brent crude gained just +0.4% to end the month at $90.49 per barrel, while WTI rose +1.3%. Oil prices nevertheless remained volatile during the month as developments between the US and Iran continued to influence expectations for supply. European natural gas prices increased +18.2%.

In foreign exchange markets, the US dollar weakened for a second consecutive month, with the Dollar Index declining -0.5%. Sterling gained +0.5% against the dollar, while the euro appreciated +0.8%. The Japanese yen reversed some of its July strength, falling -1.5% against the dollar. Emerging market currencies were generally stronger, with the broader EM currency index gaining +1.4%. The Mexican peso and South African rand were among the stronger currencies during the month, appreciating +2.0% and +2.6% respectively against the dollar.