August Review 2026

Equities broadly gained in August, and at the index level there was only minimal volatility amid seasonally softer trading volumes and a very strong Q2 earnings season. Large caps outpaced their mid-cap and small peers and slowly rising tensions in the Middle East helped buoy the Energy sector. But technology firms—largely tied to the AI-ecosystem—also performed strongly in August after giving back some their impressive H1-2026 gains in July. Because of the strong gains in technology stocks, growth-oriented indices outperformed their value-index peers across the cap spectrum. In addition, some rate sensitive sectors came under pressure in August, with both Utilities and Real Estate declining in the month.

International equities also made solid gains in August, with Emerging Markets leading the way. EM equities benefited from a strong rebound in both the South Korean and Taiwanese stock markets in August, which both gained more than 6%. Both of these indices are dominated by mega-cap AI-oriented names which have been volatile over the recent weeks but ended August higher. Unlike in the US, international small caps generally outperformed their large-cap peers as investors rotated into some of the less expensive parts of the equity market. After strong buying in July by government affiliated banks and insurance companies, Chinese equities traded slightly lower in August as macroeconomic data generally disappointed.

Rates and credit markets lagged equities in August as sticky inflation, heavy issuance, and hawkish Fed rhetoric pushed yields higher. The 10-year Treasury yield ended the month at a year-to-date high of 4.75%, while the 2-year yield rose to 4.34%. Treasury buybacks provided brief support, but deficit concerns and continued supply kept long-term yields elevated. Record investment-grade issuance widened spreads, while tight high-yield spreads supported positive returns. Municipal bonds delivered mixed results and underperformed Treasuries. Portfolios positioned for a resilient economy and a higher-for-longer rate environment remain well placed amid a more volatile macro backdrop.

Hedged strategies delivered positive performance in August despite elevated volatility and rising interest rates into month-end. Macro strategies were the strongest performers, as systematic trend-followers benefited from strong trends across oil, energy, and agricultural commodities, along with opportunities in currency markets. Equity hedge strategies also posted solid gains as equity markets rebounded from July weakness, with improving market breadth and stock dispersion supporting fundamental growth, value, and market-neutral managers. Relative value strategies generated modest gains, led by convertible arbitrage, while multi-strategy managers remained positive despite rising Treasury yields. Event-driven strategies were approximately flat, as continued M&A activity supported merger arbitrage, offset by slight weakness in catalyst-driven special situations.

Commodities generated strong returns in August as geopolitical tensions heated up and supply disruption concerns continued to underpin energy and industrial materials prices. Gold outperformed the month and pushed year-to-date returns into positive territory as investors embraced the “debasement trade”; seeking hard assets and stores of value amid persistent fiscal deficits, geopolitical uncertainty, and a softer US dollar. In contrast, REITs and infrastructure equities struggled as higher long-term Treasury yields weighed on these interest-rate-sensitive assets. Bitcoin rallied sharply during the month, benefitting from renewed institutional demand and growing interest in alternatives viewed as less dependent on traditional monetary and fiscal regimes.