Fraser Sanderson, CFA - Investment Strategist
While there was no let up in eventful news headlines, August was noticeably calmer than much of 2026, with markets enjoying a brief period of respite after a year dominated by geopolitical tension, AI euphoria and volatility across bonds and equities. That calm will have been particularly welcomed by investors over the summer holiday season, with those checking markets from the beach spared the sharp swings that have become a recurring feature of recent years. As a result, investors were generally rewarded for looking through the noise, as resilient economic fundamentals continued to support risk assets.
Against that backdrop, global equities delivered modest gains, with the MSCI ACWI rising 2.6%. The S&P 500 followed suit, also rising 2.6%, helped along by a livelier Magnificent 7 (+3.8%) and genuine breadth beneath the surface, with the S&P 500 Equal Weighted Index up 1.9%. Semiconductors added positively too, with the Philadelphia Semiconductor Index adding 2.0% as Nvidia’s results gave the sector a much needed confidence boost. Jensen Huang, Nvidia co-founder and CEO, told the market to expect 70% revenue growth by fiscal 2028, comfortably ahead of what analysts had pencilled in, which helped the AI trade recover from its wobble earlier in the month due to the impact of rising borrowing costs. Regional performance was more subdued elsewhere, with Europe and the UK broadly flat for the month, while Japan and emerging markets outperformed. China was the worst performing major region, as retail sales disappointed and both real estate and infrastructure investment contracted significantly, pointing to a slowdown rather than the recovery investors had hoped for. The Hang Seng (HK) Index slipped 1.2%, and the Nasdaq Golden Dragon Index – an index of companies whose business is mostly conducted in China but whose shares are listed in the US - fell 7.9% as a result. Bitcoin, the poster child of the cryptocurrency market, gained 25.2% and briefly moved back above $80,000, although still some way short of the record highs above $120,000 reached in October 2025.
Middle East tensions once again set the tone, with early hopes for diplomacy briefly boosting equity markets and easing oil prices. That optimism didn’t last long, however, as talks collapsed a couple of weeks later as the US and Iran traded strikes once more, including Iranian missiles hitting cargo tankers in the Strait of Hormuz. Oil and gas prices reacted as expected, with WTI crude climbing to $84.7 a barrel, up 1.3% on the month, whilst European LNG prices soared to their highest level since 2023. Commodities more broadly joined in, with the Bloomberg Commodity Index up 7.1% as oil, gas, precious metals and agricultural products all moved higher, the latter also picking up a bid on reports of a ‘Super El Niño’ event occurring later in the year. Government bond markets took note, with yields pushing higher as investors began pricing in a higher-for-longer inflationary environment. UK inflation added to global pressures, with CPI rising to 2.9%, complicating the Bank of England’s interest rate path even further. By 1st September, the 10-year gilt yield stood at 5.20% and the 30-year at 5.87%, its highest level since 1998. The US 10-year reached 4.78%, a level not seen since October 2023, while the Japanese 10-year broke through 3.00% for the first time since 1996. By month-end, sovereign yields across the globe all look to be trending in the same upward direction.
One of August’s major headlines came courtesy of the US Federal Reserve, which stepped up its planned purchases of longer-dated (20-30yr) Treasury bonds to at least $4bn per operation. In the grand scheme of things, this sum barely moves the needle, but gold investors appeared to interpret it as another dent in the US dollar’s credibility, and the gold price responded with a 9.6% rise, a welcome gain after a lacklustre few months which saw the yellow metal retreat from January’s all-time-high of $5,500/oz. Despite the Treasury’s show of support, yields soon carried on climbing regardless, both in the US and globally. Currency markets were also influenced by official intervention as US authorities continued efforts to support the Japanese yen, reflecting ongoing concern about yen weakness and the broader implications on other global economies. Inflation has played its part in the rise in yields, but the bigger story running through 2026 has been rising real yields, which indicate that governments may simply be spending more than markets are comfortable with. Fed Chair Warsh struck a notably hawkish tone at the Jackson Hole Economic Symposium, leaving the door open to a rate hike on 16th September should the 11th September CPI print fail to show sufficient cooling.
Looking ahead, it’s a relief to see volatility easing after July’s rollercoaster for semiconductor stocks, with the VIX index - often referred to as Wall Street’s ‘fear gauge’ - drifting down from 16.0 to 15.2 over the month, a small but welcome dose of calm before we approach the start of Q4. Risks certainly haven’t gone away, with the Iran conflict and rising borrowing costs both still capable of causing trouble, but the broader backdrop remains a genuinely encouraging one, underpinned by strong corporate earnings, resilient growth and an AI investment boom that shows no sign of slowing down just yet. Whilst much of the market remains fixated on AI expenditure, valuations and whether the party can continue, there continues to be a plethora of attractive investment opportunities available for investors who look further afield.
