Market Commentary – August 2026
This post was originally published on this site.
as of 08.31.2026
- Returns in financial markets were generally positive in August. Equities performed well after a very solid second-quarter earnings season, while bonds were essentially flat in terms of total return.
- The S&P 500 index was up a solid 2.72% and the Equal-Weight index advanced 2.06%. Small-cap and international indices also performed well for the month. The Energy sector led the way higher, a function of renewed tensions in the Strait of Hormuz, and Technology came in a strong second.
- Equities advanced on very impressive earnings results from a wide variety of companies. Revenue growth accelerated to the fastest pace since 2021. Excluding the volatile energy sector, real revenues rose a strong 6.4% year-over-year according to Goldman Sachs.
- Another aspect of earnings that can distort results is the mark-to-market appreciation of private investment stakes. Excluding this boost, earnings grew a robust 31% year-over-year for the S&P 500 index, and a respectable 14% for the median company.
- With the growing importance of the AI boom to overall economic activity, an increasing number of companies are mentioning AI in their quarterly earnings calls with analysts. Goldman Sachs notes that 65% of S&P 500 management teams mentioned AI on their second quarter calls, and about half for the Russell 3000. Only a small fraction of these quantified the impact of AI on specific use cases or earnings. A growing number of management teams also discussed the costs associated with AI use. We expect these trends will continue as AI becomes more entrenched in the fabric of operations for more companies.
- Nvidia Corp, Microsoft Corp, Tesla Inc, and Apple Inc were the top three contributors to return for the S&P 500 in August whereas Alphabet Inc, Amazon.com Inc, and Broadcom Inc were the biggest detractors.
- Bond yields rose by two to ten basis points for 10 year and shorter maturities, and they fell by a few for longer-dated maturities. Bearish sentiment was dominant all month, indicating a trend toward higher bond yields. Some of this negative sentiment stemmed from the revelation that total U.S. federal debt crossed the $40 trillion threshold in August. This news intensified the attention on the $2 trillion budget deficit (~ 6% of GDP) and the intractability of the debt problem.
- Higher bond yields in the short end led to a weak, but positive, total return for the Bloomberg Intermediate Agg index of 0.29%, while the Municipal Index was down by 0.23%. Higher yields present attractive opportunities to reinvest cash flow from coupon income and maturing securities at more favorable rates in order to generate income.
- Most of the economic data released in August demonstrated relative resilience for the economy. Retail sales was an exception, coming in weaker than expected, but this may have been due to the timing of Amazon’s Prime Day which shifted some sales into June.
- The July labor report was also disappointing, showing a loss of 23K jobs. The prior two months were also revised lower by 103K jobs. However, much of the decline may have been attributable to the local government sector, which could be due to seasonal factor adjustments, as well as the end of the World Cup and its effects on leisure and hospitality jobs. Notably, the manufacturing and construction sectors posted job gains which bodes well for these two cyclical areas.
- As we enter the last month of the quarter, investors and economists remain focused on two major themes shaping the outlook for markets and the economy:
- The AI spending boom alone is adding almost a percentage point to real GDP growth and may now be responsible for drawing capital away from Treasuries. How long it goes, how it is funded, and when it will pay off are being hotly debated.
- Consumers are facing increasing headwinds in the form of high inflation for food and energy, even as costs remain elevated in many other areas such as autos. When they begin to scale back consumption is also being debated.
Index Definitions
The S&P 500 (S&P 500) Total Return is a market capitalization-weighted index composed of the 500 most widely held stocks whose assets and/or revenues are based in the US; it’s often used as a proxy for the U.S. stock market. TR (Total Return) indexes include daily reinvestment of dividends.
MSCI EAFE Total Return Net is the Morgan Stanley Capital International Europe, Australia, and Far East index that is a market-capitalization-weighted index of 21 non-U.S. industrialized country indexes. The index includes net dividends reinvested minus-tax-credit calculations, but subtracts withholding taxes retained at the source for foreigners who do not benefit from a double taxation treaty.
The MSCI Emerging Markets (MSCI EM) Index captures large and mid cap representation across 27 Emerging Markets (EM) countries.
Bloomberg Municipal Bond Index Total Return Index Value Unhedged USD (Municipal Bond Index) covers the US-denominated long-term tax exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds and prerefunded bonds.
The Bloomberg Intermediate U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the performance of investment grade, U.S. dollar-denominated, fixed-rate taxable bond market with less than 10 years to maturity. The securitized sector includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS, and CMBS.
The federal funds rate is the interest rate at which depository institutions trade federal funds (balances held at Federal Reserve Banks) with each other overnight. When a depository institution has surplus balances in its reserve account, it lends to other banks in need of larger balances. In simpler terms, a bank with excess cash, which is often referred to as liquidity, will lend to another bank that needs to quickly raise liquidity. (1) The rate that the borrowing institution pays to the lending institution is determined between the two banks; the weighted average rate for all of these types of negotiations is called the effective federal funds rate.(2) The effective federal funds rate is essentially determined by the market but is influenced by the Federal Reserve through open market operations to reach the federal funds rate target. All Key Rates and Returns by Index are quoted out of Bloomberg.
The CPI Index represents changes in prices of all goods and services purchases for consumption by urban households. Retail Gas Prices are provided by AAA using data from up to 120,000 retail stations. West Texas Intermediate (WTI) crude oil is a specific grade of crude oil and one of the main three benchmarks in oil pricing, along with Brent and Dubai Crude.
Equity Returns by Sector are based on the GICS methodology. Return data are calculated by Bloomberg using constituents and weights as provided by Standard & Poor’s. Returns are cumulative total return for stated period, including reinvestment of dividends.
Chart Definitions
The Services and Manufacturing PMI from the Institute for Supply Management (ISM) is a composite index based on the diffusion indexes for four of the indicators with equal weights: Business Activity (seasonally adjusted), New Orders (seasonally adjusted), Employment (seasonally adjusted) and Supplier Deliveries. The Manufacturing PMI is a composite index based on the diffusion indexes of five of the indexes with equal weights: New Orders (seasonally adjusted), Production (seasonally adjusted), Employment (seasonally adjusted), Supplier Deliveries, and Inventories (seasonally adjusted). Diffusion indexes have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change and the scope of change. An index reading above 50 percent indicates that the services economy is generally expanding; below 50 percent indicates that it is generally declining. Supplier Deliveries is an exception. A Supplier Deliveries Index above 50 percent indicates slower deliveries and below 50 percent indicates faster deliveries.
The PCE Price Index Excluding Food and Energy, also known as the core PCE price index, is released as part of the monthly Personal Income and Outlays report. The core index makes it easier to see the underlying inflation trend by excluding two categories – food and energy – where prices tend to swing up and down more dramatically and more often than other prices. The core PCE price index is closely watched by the Federal Reserve as it conducts monetary policy. The PCE price index, released each month in the Personal Income and Outlays report, reflects changes in the prices of goods and services purchased by consumers in the United States. Quarterly and annual data are included in the GDP release.
Total Nonfarm, commonly known as Total Nonfarm Payroll, is a measure of the number of U.S. workers in the economy that excludes proprietors, private household employees, unpaid volunteers, farm employees, and the unincorporated self-employed. This measure accounts for approximately 80 percent of the workers who contribute to Gross Domestic Product (GDP).
The diffusion non-farm payrolls chart are based on the percent of industries with employment increasing plus one-half the industries unchanged employment, where 50% indicates an equal balance between industries with increasing and decreasing employment.
Disclaimer
This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professional, if any investment mentioned herein is believed to be appropriate to their financial situation and investment profile. Investors should ensure that they obtain all available relevant information before making any investment. It should be noted that investments involve risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted.
Past performance does not guarantee future results. Diversification does not guarantee investment returns and does not eliminate the risk of loss.
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