Overview
Globally, stocks entered August with a steady tone, supported by ongoing economic resilience and healthy corporate earnings. US equites rebounded at the beginning of the month and held steady, as the second quarter earnings season concluded with a strong report from Nvidia. The Middle East conflict continued on, keeping crude oil fluctuating around $90 per barrel. Bond markets reflected shifting monetary expectations. The US yield curve flattened, with increased rate hike expectations following a hawkish speech from the Federal Reserve Chair Kevin Warsh at the Jackson Hole conference. The US Treasury also decided to expand long-dated bond buybacks, with a mixed reaction from the market.
Equity performance was broadly positive across regions. Developed markets gained 2.6%, and emerging markets gained 3.4%, tracked by the MSCI EM and world Indexes. As these indexes are tracked in US dollars, the dollar depreciation helped returns. Nonetheless, fundamentals did back it up, as second quarter earnings were strong across major regions. Analyst consensus global EPS growth estimates for 2026 are at a stellar 34% year-over-year.
Growth and value stocks both gained 2.6%, according to their respective MSCI indexes, while small cap stocks outperformed with 2.9%, as economies showed to be expanding. Both the Global and US composite PMI reports showed expansionary numbers, over 50. Technology shares regained momentum after July’s pullback. Software companies rebounded, as their latest earnings releases calmed investors’ nerves. They have faced selling pressure amid concerns that artificial intelligence could render software companies’ business models obsolete. AI related hardware companies held steady.
Commodities had a strong month as well, led by gains in gold and other metals, as investors worried about U.S. dollar depreciation. Agricultural commodities, particularly wheat, rose on concerns that escalating tensions in Ukraine and El Niño-related weather disruptions would tighten global supply. Energy markets were mixed, with oil prices remaining stable despite U.S.-Iran tensions. Meanwhile, European natural gas prices reached year-to-date highs due to low inventories and refinery outages.
Stocks & Commodities
The US was a strong performer this month. The S&P 500 rose 2.7%, assisted by Nvidia’s strong earnings report. Mega-cap technology returns were somewhat fragmented. For example, Nvidia saw price appreciation with a decline from Broadcom, but aggregately we saw a resurgence in AI optimism. The equal-weighted S&P 500 fell behind the cap-weighted counterpart, hinting at narrow market leadership, even as the broader US economy was shown to be expanding. The U.S. S&P Global Composite PMI Flash reading reached 56, a multi-year high.
In Canada, the S&P/TSX index outperformed the SP500, gaining 3.1% for the month. This was driven by a huge gain from the materials sector, up 25.8%, and Information Technology, up 12.9%. The broader commodity GSCI index rose 6.1% with gold surging 9.6% due to safe-haven demand and central bank buying. However, not everything participated. Defensive sectors, such as consumer staples, utilities, and health care declined. Financials experienced a pullback from the sector’s stellar run over the second quarter. The Loonie strengthened against the US dollar, helped by high commodity prices. This was despite trade uncertainty between the US and Canada remaining elevated. President Trump threatened 50% tariffs on selected Canadian imports. After negotiations failed, the tariffs were implemented on August 22, affecting approximately US$20 billion of Canadian goods. The strong performance of cyclical sectors showed the market was more focused on earnings and economic growth.
Across the Pacific, Japan’s TOPIX rose by 3.9% as the yen weakened against the US dollar, despite a coordinated currency intervention effort between the US and Japan to strengthen the yen. The softer currency amplified the appeal of Japan’s exporters, and US AI data center build out into Japan helped boost economic growth. Fiscal support added further momentum.
Europe also saw positive momentum as growth-style stocks benefited from the renewed enthusiasm for technology. The region fell behind its peers, however, with the MSCI Europe Ex-UK index gaining only 0.9% over the month. There were signs of economic momentum, as the Eurozone Composite PMI report came in expansionary, at 52.1. Expectations of another hike from the European Central Bank before the end of the year muted the tone, as inflation pressures lingered.
Emerging Market equities were ahead of the pack at 3.4% in USD terms, tracked from their MSCI index. This was boosted by depreciation in the USD, however, as local-currency returns came in at only 1.9%. Taiwan stood out, propelled by the AI-intensive Taiwan Stock Index. To contrast, Korea fell behind despite SK Hynix and Samsung Electronics announcing plans to boost shareholder returns using increased share buybacks and dividends. This separation reflected investors moving towards quality earnings.
China’s market momentum from July appeared to be short lived, as August’s activity data showed persistent domestic weakness. Despite this, there looked to be some areas of strength, as AI-related IPO volumes surged, reflecting both policy encouragement and strong investor appetite. The broader narrative however remained cautious, as China’s economic slowdown cast a shadow over regional supply chains and commodity demand.
In commodities, precious and industrial metals rallied. Gold rose sharply due to the Treasury’s buyback program reviving concerns about the value of the USD. Buybacks will increase the amount of money in circulation. Agricultural commodities also increased, especially wheat prices. This was due to fears of renewed supply disruptions from reports that Russia’s military would escalate it’s attack on the Ukraine, as well as the ongoing El Niño weather pattern creating concerns about lower crop yields. Oil remained range-bound, despite ongoing US-Iran tensions. European natural gas prices surged to year-to-date highs, affected by low inventories and repeated refinery outages.
Bonds
US government bonds delivered modest returns of 0.3%, tracked by the Bloomberg benchmark government index. This was supported by the Treasury’s decision to significantly increase long-dated bond buybacks, helping ease long-term yields, after they had reached a multi-decade high. Short-term yields climbed, however, as Fed Chair Warsh acknowledged that US inflation data had not meaningfully improved at his speech in Jackson Hole.
The Canadian Bond Universe slipped by 0.3% due to concerns over government debt levels and US central bank credibility, as the market doubted Warshes conviction to bring down inflation with higher rates. Canadian bonds have sensitivity to US policy. Long-term bonds took the largest hit at -0.9%.
UK Gilts posted gains, assisted by the absence of any major policy shifts from newly appointed Prime Minister Andy Burnham. Across Europe, however, sovereign returns were negative as yields rose across the curve. Markets continued to account for a rate hike in September. German, Italy, and Spanish sovereign debt was negative, with an aggregate return of -0.5%, French Government bonds suffered downward pressure from investor unease surrounding the upcoming 2027 budget.
Japan’s government bond market fared worst among the major developed economies. The 10-year JGB yield climbed to 2.95%, a level not seen in decades. The climb was driven by a combination of renewed inflation pressures and increased government spending, which raised questions about the sustainability of long-term debt. Short-term yields also rose as markets increasingly expected a September rate hike, supported by persistent inflation concerns and external pressures related to Japan’s coordinated efforts with the United States to strengthen the yen at the end of July.
In credit markets, investment grade spreads held steady despite heavy issuance from US hyperscalers to continue the AI infrastructure buildout. Strong earnings overrode worries about increasing company debt loads. High yield spreads further tightened, with risk sentiment improving from the strong earnings and economic data. Emerging market debt outperformed as well, propped up by US dollar depreciation.
Conclusion
August finished with broad positive momentum across equities, supported by strong earnings and global economic growth. Technology remained the driver, as the data center buildout continued, feeding profits across the sector. Fixed income remained muted, with inflation concerns, and interest rates rising around the world. Return differences across regions reinforced the value of geographic diversification.
