Market moves & themes that mattered: August 2026

Market overview

Global equities advanced in August, with the MSCI World Index rising 2.6% in U.S. dollar terms and extending its year-to-date gain to 13.4%. Asia Pacific and U.S. markets led, while the UK and continental Europe lagged. Technology, materials, and energy powered gains, while currency moves also influenced returns across Europe and parts of Asia. Global government bonds were mixed as higher long-term yields in Europe and Japan offset modest gains in U.S. Treasuries. Global corporate bonds rose, with high yield outperforming investment grade as credit spreads generally narrowed.

Oil prices edged higher amid an uneasy stalemate between the U.S. and Iran, with WTI crude and Brent holding near multi-month highs after surging in July. The U.S. Dollar Index fell 0.5% versus a basket of global currencies, though the Japanese yen weakened during the month, while gold surged nearly 10% and silver advanced more than 15%.

Key themes that mattered for markets

• More dispersion within the AI trade: While earnings season broadly reinforced the strong demand backdrop driving the artificial intelligence (AI) buildout, August saw market leadership continue to expand beyond chipmakers and AI infrastructure providers. Companies demonstrating tangible benefits from AI adoption – productivity gains, AI agent monetization, and new revenue opportunities – were increasingly rewarded. Software rallied, outperforming semiconductors for a second straight month, a sharp reversal from the “SaaSpocalypse” narrative that prevailed earlier in the year amid fears that software business models would be displaced by AI.
• Return of the so-called dollar debasement theme: After last month’s coordinated efforts between the U.S. and Japan to stabilize the yen, U.S. Secretary Bessent surprised markets in August by announcing plans to at least double buybacks of long-dated Treasuries. Although presented as a liquidity-support measure, some interpreted the move as policymakers becoming increasingly uneasy with elevated borrowing costs and rising long-term yields. The announcement reignited debate about fiscal sustainability and the long-term outlook for the dollar, helping propel gold to a three-month high while bitcoin had its strongest month since late 2024.
• U.S. and Iran remained deadlocked, keeping energy markets on edge: August saw periodic signs of diplomatic progress, but hopes for a breakthrough repeatedly gave way to renewed tensions. Washington shifted toward applying economic pressure, including secondary sanctions on countries or entities doing business with Iran, while Tehran remained unwilling to concede on key demands. The lack of a credible near-term offramp kept a bid under oil prices, while surging diesel crack spreads pointed to tighter fuel supplies than crude benchmarks alone would suggest, keeping inflation and related demand concerns alive.
• Elevated global bond yields remained an overhang: Concerns about government borrowing needs, rising fiscal deficits, and sticky inflation pushed government bond yields higher across major markets. Longer-term yields in the U.S., Europe, the UK, and Japan hit multi-year highs during the month. While the U.S. Treasury’s announced expansion of long-bond buybacks provided temporary relief, higher term premiums, mounting sovereign debt issuance, and growing competition for capital from debt-financed AI investment remained key areas of focus.

United States

U.S. equities advanced in August as strong earnings growth and strength across select AI beneficiaries supported sentiment. The S&P 500^® Index hit fresh all-time highs mid-month before pulling back in the final two weeks as bond yields remained elevated and consumer data showed signs of softening. The tech-heavy Nasdaq Composite led major benchmarks, rebounding from July’s decline. Growth broadly outperformed value, although sector leadership extended beyond technology to energy, materials, and healthcare. Software stocks were among the standout performers, posting their fourth monthly gain in the past five months.

• The S&P 500 rose 2.7% in August, extending its year-to-date gain to 13.1%.
• The S&P 500 Equal Weight Index advanced 2.1% and remained ahead of the cap-weighted benchmark for the year, gaining 15.6% year to date.
• The Nasdaq Composite rose 4.0%, bringing its year-to-date advance to 13.9%, with software outperforming semiconductors during the month and Magnificent 7 stocks broadly higher.
• The small-cap Russell 2000 Index gained 1.0%, trailing large-cap benchmarks in August but still up more than 20% year to date.
• Growth outperformed value, with the Russell 1000 Growth Index rising 3.7% compared with a 2.0% gain for the Russell 1000 Value Index. Growth also modestly outperformed among small- and mid-cap companies, with the Russell 2500 Growth and Value indexes advancing 1.4% and 1.0%, respectively.

U.S. economic data were mixed in August, with weaker labor market and consumer spending data offset by moderating inflation and strong business activity:

• Labor market data weakened. Nonfarm payrolls fell by 23,000 in July, versus expectations for an increase of 80,000, while May and June were also revised lower by a combined 103,000. The unemployment rate fell to 4.1% from 4.2%, though this partly reflected 264,000 people leaving the labor force, which pushed the labor force participation rate down to 61.4%, its lowest level in more than five years.
• Inflation readings moderated but remained above the Federal Reserve’s (Fed) 2% target. The Consumer Price Index (CPI) rose 0.1% month over month and 3.4% year over year in July, while core CPI increased 0.2% and 2.5%, respectively. Producer prices were unchanged during the month, with annual Producer Price Index (PPI) slowing to 4.7% year over year from 5.5% in June. The Fed’s preferred inflation gauge, core PCE, rose 0.2% month over month and held steady at 3.3% year over year, as expected.
• Consumer spending data softened. Retail sales fell 0.6% in July, the first decline in nine months. However, the broader Personal Consumption Expenditures (PCE) report showed consumer spending remained positive, rising 0.2% during the month, though this marked a notable slowdown from prior months.
• Business activity accelerated, driven by strength in services. The S&P Global flash U.S. composite Purchasing Managers’ Index (PMI) rose to 56.0 in August (from 54.5 in July), its highest level since April 2022. The services PMI climbed to 56.8 from 54.6, while the manufacturing PMI eased to 53.2 from 53.9 but remained in expansion territory. Separately, the second estimate of Q2 Gross Domestic Product (GDP) growth was unrevised at an annualized 1.5%.

Europe

Eurozone equities were mostly higher in August, although performance became increasingly differentiated by country, sector, and style. The STOXX Europe 600 Index rose 0.5% in euro terms and 1.4% in U.S. dollar terms. The benchmark hit fresh record highs and logged its fifth consecutive monthly gain, supported by resilient economic data, strong corporate earnings, and strength in cyclical sectors. The MSCI Europe ex United Kingdom Index rose 0.7% in euro terms and 1.5% in dollars. Germany outperformed as its industrial and technology exposure proved supportive, while France’s CAC fell amid fiscal and political uncertainty. Rising government bond yields and expectations for tighter European Central Bank (ECB) policy tempered sentiment later in the month.

• Eurozone inflation edged up, driven by higher energy prices. Headline CPI rose to 2.9% year over year in July, up from 2.8% in June and in line with Eurostat’s preliminary estimate. Energy inflation accelerated to 10.3% from 8.5%. Core inflation, which excludes food and energy, increased to 2.5% from 2.4%. Eurostat’s flash estimate for August – released on September 1 – showed headline CPI rising further to 3.3% amid the ongoing Middle East tensions.
• Eurozone business activity expanded at its fastest pace this year. The S&P Global flash Eurozone composite PMI rose to 52.1 in August (from 52.0 in July), its highest reading since November. The manufacturing PMI rose to 52.8 (from 51.9), a more than four-year high, while the services PMI was unchanged at 51.7. New orders increased at their fastest pace in more than three years, while export orders rose for the first time since early 2022.
• Economic data pointed to improving momentum across the eurozone, led by strength in Germany. The second estimate of eurozone GDP confirmed growth of 0.4% in the second quarter. Germany’s economy grew 0.3% in the quarter, revised up from the preliminary estimate of 0.2%, while German factory orders, exports, industrial production, and business confidence all exceeded expectations.

UK equities posted modest gains in August, lagging continental Europe after July’s strong outperformance. The MSCI United Kingdom Index was little changed in sterling terms and rose 0.6% in U.S. dollars. The FTSE All-Share Index gained 0.7% in sterling and 1.2% in U.S. dollars. Sterling strengthened modestly against the U.S. dollar, while higher energy prices and fiscal uncertainty continued to put upward pressure on longer-dated gilt yields.

• UK inflation accelerated to a four-month high. The annual pace of headline CPI rose to 2.9% in July from 2.6% in June, driven largely by higher household energy bills.
• Labor market data pointed to further softening. Private sector earnings rose 2.8% year over year in the three months to June, the weakest pace since late 2020, while the unemployment rate held steady at 4.9%. Employment increased by 83,000 in the second quarter, below expectations for a gain of 129,000, while the number of payrolled employees declined for a sixth consecutive month in July.
• Business activity remained resilient despite higher energy prices and ongoing Middle East tensions. The S&P Global flash UK composite PMI rose to 52.5 in August (from 52.2 in July), a four-month high. The services PMI climbed to a six-month high of 52.8 (from 52.1), while the manufacturing PMI eased to 51.5 from 51.9 but remained in expansion territory.
• Economic growth exceeded expectations. UK GDP unexpectedly rose 0.3% in June, compared with consensus estimates for flat monthly growth. The UK economy grew 0.4% in the second quarter, a modest stepdown from 0.6% in the first three months of the year. Looking ahead, economists remain cautious toward the second half, with persistent inflation and uncertainty surrounding the new Labour government’s upcoming October Budget among the potential headwinds.
• Consumer data were mixed. Retail sales volumes fell 0.5% in July after a weather- and World Cup-driven surge in June. However, consumer confidence improved, with GfK’s Consumer Confidence Index rising to -14 in August (from -17 in July), its highest level in two years and well above expectations.

Within the STOXX 600 Index – comprising companies from 17 countries across developed Europe including the UK – sector performance was mixed.

• Basic Resources (+10.5% in euro terms) was the strongest-performing sector, supported by higher metals prices, a weaker U.S. dollar, and strong mining-company earnings.
• Media (+4.8%), Technology (+4.4%), and Financial Services (+3.4%) also outperformed, while Autos & Parts (+2.8%), Chemicals (+2.7%), and Telecommunications (+2.5%) posted solid gains.
• Industrials (+1.0%), Banks (+0.9%), and Travel & Leisure (+0.6%) rose more modestly, while Insurance (+0.1%), Retail (+0.1%), and Energy (-0.1%) were little changed.
• Defensive and rate-sensitive sectors lagged. Health Care (-0.9%) declined, followed by Consumer (-1.9%), Personal Care, Drug & Grocery (-1.9%), Utilities (-2.1%), and Construction & Materials (-2.2%).
• Real Estate (-4.2%) came under pressure as government bond yields rose, while Food, Beverage & Tobacco (-4.6%) was the weakest-performing sector.

Asia Pacific

Japanese equities were broadly higher in August amid a rebound in industrial, healthcare, and select technology companies. The TOPIX gained 3.8% in yen terms and 3.6% in U.S. dollars, while the Nikkei 225 rose 3.1% in yen terms and 2.9% in U.S. dollars. Expectations for further Bank of Japan policy normalization intensified as inflation remained elevated, while the yen weakened after its sharp appreciation at the end of July.

• Underlying inflation measures remained above the Bank of Japan’s (BoJ) 2% target, reinforcing expectations for a September rate increase. Producer prices rose 7.2% year over year in July, only slightly below June’s 7.3% pace. Japan’s headline inflation rate rose to 1.9% in July, while the BoJ’s preferred gauge of underlying inflation rose 2.3%. By month end, markets were pricing in a roughly 90% chance of a rate hike at the BoJ’s September meeting, up from just over 40% at the end of July.
• Economic growth slowed in the second quarter, though PMI readings showed continued strength in factory activity. Japan’s economy expanded at an annualized rate of 1.1% in Q2, below expectations for 2.0% and down from a revised 1.9% pace in the first quarter. Meanwhile, Japan’s flash manufacturing PMI rose to 55.1 in August from 54.5 in July, while new orders grew at their fastest pace since 2018.
• Other economic data were encouraging. Industrial production rose 0.1% month on month in July, defying expectations for a 0.7% decline, while July retail sales increased 4% year over year, marking the fourth consecutive month of growth.
• The yen remained in the spotlight. The currency weakened back through ¥160 per U.S. dollar late in the month, renewing speculation that Japanese authorities could again intervene in foreign exchange markets.

Equities across Asia Pacific ex Japan rebounded in August, with strength in South Korea, Taiwan, and Australia outweighing weakness in China. The MSCI AC Asia Pacific ex Japan Index rose 3.2% in U.S. dollar terms, extending its year-to-date gains to 25.2%. The MSCI China Index fell 0.3% in U.S. dollar terms as soft domestic demand and weakness among consumer and internet companies offset gains in energy and select technology stocks. China’s manufacturing PMI improved during the month but remained in contraction territory. Australia’s ASX 200 rose 1.7% in local currency terms and 3.7% in U.S. dollar terms as the Aussie rose sharply against the U.S. dollar. Strength in miners helped lead the index higher, while healthcare stocks also contributed to gains. However, softer July labor-market data reinforced expectations that economic growth may be moderating, while hotter-than-expected inflation data released late in the month boosted expectations for further policy tightening from the Reserve Bank of Australia.

Emerging Markets

Emerging market equities delivered their strongest August performance since 2004, partly driven by dollar weakness and a broadening of the AI rally beyond the largest names. Strength in technology-oriented Asian markets and parts of EMEA offset weakness in India and Latin America. The MSCI Emerging Markets Index rose 3.4% in U.S. dollar terms, extending its year-to-date gain to 24.3%. Performance figures below reference MSCI country indices reported in U.S. dollar terms.

• South Korea rose 6.9% and Taiwan gained 6.5%, bouncing back after July’s sharp decline as AI-linked chipmakers stabilized. South Korea remained up more than 90% year to date, while Taiwan ended the month up 64% on the year.
• India declined 0.2% as higher energy costs, modest foreign outflows, and weaker risk appetite weighed on equities. Performance across Southeast Asia was mixed. Malaysia rose 1.5% and Indonesia gained 0.3%, while Thailand declined 1.8% and the Philippines fell 7.2% amid persistent foreign investment outflows.
• EMEA saw several pockets of strength. South Africa rallied 11.6% as miners benefited from higher precious metal prices, while Turkey rose 8.0% and Poland gained 5.2%.
• Latin America lagged, with the MSCI EM Latin America Index falling 0.6%. Argentina fell 5.7%, while Brazil declined 1.3%, with political uncertainty cited as a headwind ahead of the country’s presidential election in October. Meanwhile, energy exporters Chile and Peru advanced 2.5% and 2.2%, respectively, with miners boosted by higher metal prices.

Fixed Income

Global government bonds were little changed in August as sovereign yields moved unevenly across major markets. U.S. Treasury yields finished near their starting levels after considerable intra-month volatility, while long-term yields rose in Germany, the UK, and Japan amid fiscal concerns, elevated issuance, persistent inflation, and shifting central bank expectations.

• The Bloomberg Global Treasury Index was flat in U.S. dollar-hedged terms and declined 0.2% year to date.
• The U.S. 10-year Treasury yield was unchanged at 4.75%, although it ended August back near its highest levels of the month as yields resumed their upward climb, retracing after the Treasury’s expanded buyback plan provided temporary relief.
• The U.S. Treasury curve bear flattened as hawkish takeaways from Fed Chair Kevin Warsh’s August 28 Jackson Hole speech led to a sharp rise in front-end yields, while longer-term yields remained relatively anchored. The spread between 10-year and 2-year Treasury yields narrowed to 41 basis points (bps) from 47 bps at the start of the month.

• In Europe, UK government bond returns were modestly positive, as the yield on the UK 10-year gilt yield edged up 1 bp to 5.06%.
• German sovereign bonds came under pressure, with the 10-year bund yield rising approximately 12 bps to 3.32%, its highest level since 2011, reflecting heavier government borrowing needs and expectations for tighter ECB policy.
• Japanese government bonds (JGBs) also declined, as the yield on the 10-year JGB rose 14 bps to 2.94%, approaching 3.0% for the first time since 1996, amid expectations for further Bank of Japan policy normalization.

Emerging market hard-currency debt outperformed, rebounding from July’s decline, with narrower spreads driving the bulk of returns against the backdrop of dollar weakness and resilient global risk appetite.

• The J.P. Morgan EMBI Global Diversified Index, which tracks U.S. dollar-denominated debt issued by emerging market governments, rose 0.9% in August.
• Emerging market sovereign spreads narrowed by approximately 10 bps to 217 bps over U.S. Treasuries.

Spread sectors advanced in August, with high yield outperforming investment-grade corporate bonds as credit spreads tightened and investor risk appetite improved. High levels of corporate issuance weighed on investment-grade relative performance, though strong investor demand remained supportive.

• The Bloomberg Global Aggregate Corporate Index rose 0.3% in U.S. dollar-hedged terms, while the Bloomberg Global High Yield Index gained 0.9% on a hedged basis.
• Global investment-grade option-adjusted spreads (OAS) were little changed, while global high-yield spreads narrowed by approximately 15 bps to 272.
• U.S. investment-grade corporate bonds, as measured by the Bloomberg U.S. Corporate Index, gained 0.4%, while the Bloomberg U.S. Corporate High Yield Index advanced 1.0%.
• U.S. investment-grade spreads were unchanged at approximately 78 bps, while U.S. high-yield spreads narrowed by approximately 18 bps to 261.
• In securitized markets, the Bloomberg U.S. Securitized Index, which includes mortgage-backed securities (MBS), commercial mortgage-backed securities (CMBS), and asset-backed securities (ABS), gained 0.5%. Composite spreads were little changed on the month.

Central Bank Watch

August was a relatively quiet month for major central bank meetings, leaving market participants looking ahead to a busier calendar in September. The most influential development for markets came late in the month at the Federal Reserve’s annual Jackson Hole symposium, where Chair Kevin Warsh reasserted the committee’s commitment to the 2% inflation target, helping reinforce the Fed’s inflation-fighting credibility while stopping short of offering forward guidance. The somewhat more hawkish-than-expected tone from Warsh led investors to pull forward expectations for rate increases, with markets pricing in a roughly 65% chance of a 25 bp hike from the Fed in September, compared with closer to 35% before his speech.

• Reserve Bank of Australia (Aug. 11): The RBA left its cash rate unchanged at 4.35% for a second consecutive meeting but maintained a hawkish tone, indicating that further rate increases remain possible if inflationary pressures persist. Governor Michele Bullock said it was “quite possible” rates may need to rise again.
• Norges Bank (Aug. 13): Norway’s central bank left its policy rate unchanged at 4.25% but kept the door open to additional tightening, noting that while inflation has moderated, price pressures remain above target.
• Sweden’s Riksbank (Aug. 20): Sweden kept its policy rate unchanged at 1.75% and warned that stronger-than-expected inflation could warrant a further rate increase before year end.
• People’s Bank of China (Aug. 20): The PBOC left its one-year and five-year loan prime rates unchanged at 3.0% and 3.5%, respectively, for a fifteenth consecutive month.
• Bank of Korea (Aug. 27): The BoK raised its benchmark rate by 25 bps to 3.0%, a second consecutive increase, with policymakers signaling that future tightening is likely to proceed at a gradual pace.
• Other central banks: Among other notable policy decisions, Brazil (Aug. 5) cut its benchmark Selic rate by 25 bps to 14.0%, its fourth consecutive reduction, bringing cumulative easing since March to 100 bps. India (Aug. 5) kept the repo rate unchanged at 5.5%. Governor Sanjay Malhotra maintained a neutral stance and emphasized data dependence as inflation continued to moderate. Mexico (Aug. 6) held its benchmark rate unchanged at 6.5% for a second straight meeting and indicated it was likely to maintain the current policy stance in the near term. Indonesia (Aug. 19) held its benchmark rate at 5.75% for a second consecutive meeting, as expected. The decision was the first under Acting Governor Destry Damayanti, who signaled policy continuity and vowed to maintain rupiah stability. Hungary (Aug. 25) lowered its base rate by 25 bps to 5.5%, marking its fourth rate cut this year. Conversely, the Philippines (Aug. 27) raised its benchmark rate by 25 bps to 5.0%, its third consecutive hike.
• Looking ahead: September brings a significantly busier policy calendar, with meetings scheduled for the Bank of Canada, European Central Bank, Federal Reserve, Bank of England, and Bank of Japan. As of the end of August, markets viewed a 25 bp rate hike from the ECB as a near certainty, while futures markets also pointed to a strong possibility of tightening from both the Fed and the Bank of Japan.

Key events on tap in September

• Sep. 1 – Global Manufacturing PMIs (August, final)
• Sep. 1 – Eurozone Consumer Price Index (August, preliminary)
• Sep. 2 – Bank of Canada (BoC) Rate Decision
• Sep. 3 – Global Services and Composite PMIs (August, final)
• Sep. 4 – U.S. Nonfarm Payrolls, Unemployment Rate (August)
• Sep. 7 – Eurozone Gross Domestic Product (Q2, final)
• Sep. 8 – Japan Gross Domestic Product (Q2, final)
• Sep. 10 – European Central Bank (ECB) Rate Decision
• Sep. 11 – U.S. Consumer Price Index (August)
• Sep. 15 – China August Activity Data (Industrial Production, Retail Sales)
• Sep. 16 – UK Consumer Price Index (August)
• Sep. 16 – U.S. Federal Reserve (Fed) Rate Decision
• Sep. 17 – Eurozone Consumer Price Index (August, final)
• Sep. 17 – Bank of England (BoE) Rate Decision
• Sep. 18 – Bank of Japan (BoJ) Rate Decision
• Sep. 23 – Global PMIs (September, flash estimate)
• Sep. 29 – Reserve Bank of Australia (RBA) Rate Decision
• Sep. 30 – UK Gross Domestic Product (Q2, final)
• Sep. 30 – U.S. Gross Domestic Product (Q2, final)

Market Performance

Total returns (%), periods ended August 31, 2026

IMPORTANT INFORMATION

Artificial intelligence (“AI”) focused companies, including those that develop or utilize AI technologies, may face rapid product obsolescence, intense competition, and increased regulatory scrutiny. These companies often rely heavily on intellectual property, invest significantly in research and development, and depend on maintaining and growing consumer demand. Their securities may be more volatile than those of companies offering more established technologies and may be affected by risks tied to the use of AI in business operations, including legal liability or reputational harm.

Equity securities are subject to risks including market risk. Returns will fluctuate in response to issuer, political and economic developments.

Fixed income securities are subject to interest rate, inflation, credit and default risk. As interest rates rise, bond prices usually fall, and vice versa. High-yield bonds, or “junk” bonds, involve a greater risk of default and price volatility. Foreign securities, including sovereign debt, are subject to currency fluctuations, political and economic uncertainty and increased volatility and lower liquidity, all of which are magnified in emerging markets.

Foreign securities are subject to additional risks including currency fluctuations, political and economic uncertainty, increased volatility, lower liquidity and differing financial and information reporting standards, all of which are magnified in emerging markets.

Sovereign debt securities are subject to the additional risk that, under some political, diplomatic, social or economic circumstances, some developing countries that issue lower quality debt securities may be unable or unwilling to make principal or interest payments as they come due.