Global Market Strategist
Global stocks regained their poise in August amid ongoing economic resilience and a healthy corporate earnings backdrop. The US stock market rebounded, as another blockbuster Nvidia report concluded a stellar second-quarter earnings season. The Middle East backdrop remained tense, with Brent Crude oil oscillating around the $90 per barrel mark. The US government bond yield curve flattened as rate hike expectations picked up following a hawkish speech by Federal Reserve (Fed) Chair Warsh at the annual Jackson Hole Symposium, while the US Treasury unexpectedly announced plans to ramp up longer-dated bond buybacks.
There were broad-based gains across developed market (+2.6%) and emerging market (+3.4%) stocks. The latter outperformed slightly in US dollar terms, though this was partly due to the weaker greenback amplifying dollar-denominated returns. Nonetheless, there were solid second-quarter earnings growth numbers across the major regions. Energy and technology-related sectors reported the strongest earnings per share (EPS) growth figures, but there were also signs of earnings broadening. The 2026 global EPS growth estimate subsequently rose to a staggering 34% year-over-year (y/y).
Amid the buoyant earnings backdrop, both growth (+2.6%) and value (+2.6%) stocks rose in August. Notably, technology stock momentum resumed after July’s sharp sell-off. Semiconductor stocks bounced back, but it was in fact the software sector that had stronger gains as solid fundamentals in the latest earnings season offset concerns over the threat from artificial intelligence (AI). Meanwhile, small cap stocks also outperformed (+2.9%), coinciding with robust global economic data. For example, the flash Composite Purchasing Managers’ Index (PMI) data remained comfortably in expansion territory in August.
The stock ascent also coincided with a broad-based rise in commodity prices. Precious and industrial metal prices rose, with gold up by a tenth, as the US Treasury’s ‘interventionist’ government bond buyback announcement reignited chatter around the so-called ‘debasement trade’ (which also partly explained the softer US dollar). Agricultural commodities also rose notably, especially wheat prices, with further supply disruptions possible after reports that Russia was planning to escalate its Ukraine offensive and with the El Niño weather pattern continuing to build. Energy price moves were mixed. Oil remained range-bound, despite ongoing US-Iran skirmishes. However, front-end European wholesale natural gas prices hit a year-to-date high, with local inventories running low and refineries continuing to be struck across Russia and the Middle East. The MSCI World Materials Index was subsequently the top-performing equity sector in August, while energy stocks also outperformed.
In bond markets, the Global Aggregate Index returned 0.5% in dollar terms, though local currency returns varied as the US dollar weakened. Government bond returns were mixed, with US yields more stable than in continental Europe, coinciding with the longer-dated US Treasury buyback announcement. Government bond yields nevertheless remained sensitive to fluctuations in energy prices and central bank rhetoric, with 10-year yields touching fresh cycle highs in several parts of the world. Meanwhile, corporate bonds outperformed, notably high yield credit where spreads narrowed to a 12-month low.
Equities
The US was one of the best performing major stock market regions (in local currency terms), with the S&P 500 rising by 2.7%. Unsurprisingly, the AI trade remained in focus amid booming capex and earnings, but mega-cap technology stock returns were somewhat fragmented. For instance, among the large semiconductor names, Nvidia rose by a tenth while Broadcom declined. While the domestic economic backdrop remained upbeat—the flash US Composite PMI hit a 52-month high—the equal-weighted S&P 500 Index modestly underperformed its cap-weighted equivalent, which last occurred in May.
In other developed markets, Japan’s TOPIX Index rose by 3.9%, which coincided with a softening in the yen (despite the joint US-Japan currency intervention at the end of July). The US AI data centre build-out and a looser domestic fiscal stance nevertheless contributed to widespread returns across Japanese sectors. European stock index returns were boosted by growth-style stocks amid renewed technology momentum, though they lagged.
In emerging markets, the closely watched EM Asia index rose by 3.4% (although its local currency return was almost 2 percentage points lower). The AI-intensive Taiwan stock index was the standout performer in local currency terms, while Korea’s index lagged even as SK Hynix and Samsung Electronics announced plans to boost shareholder returns via greater share buybacks and dividends. Last month’s China stock market bounce proved to be short-lived, with August’s activity data bundle highlighting ongoing domestic demand weakness. That said, AI-related onshore initial public offering volumes have picked up significantly.
Fixed income
Nominal government bond returns were mixed in developed markets.
US government bonds returned 0.3% in local currency terms. Front-end yields drifted higher as Fed Chair Warsh acknowledged that recent US inflation data had not meaningfully improved in his keynote Jackson Hole speech. Conversely, the 30-year yield edged lower on the month—despite having briefly risen to its highest reading since 2007—after the US Treasury announced plans to at least double the pace of longer-dated bond buybacks from September onwards.
In Europe, UK Gilt returns were also positive, with no signs yet of any macroeconomically significant policy announcements from the new prime minister, Andy Burnham. Returns on the continent were negative, as yields rose across the curve. Money markets continued to pencil in a rate hike at the upcoming European Central Bank (ECB) meeting in September, with ECB officials also striking a hawkish tone in their latest comments. German Bund returns were modestly negative, with the 10-year yield touching a fresh cycle high of 3.32%, while French government bonds underperformed the wider bloc as 2027 French budget talks loomed.
Japan’s government bonds were the worst performers (in local currency terms). The 10-year Japanese Government Bond (JGB) yield rose to a multi-decade high of 2.95%, amid the looser fiscal backdrop and inflation turning higher again. Front-end yields rose most visibly as money markets brought forward their Bank of Japan rate hike expectations to September, with growing external pressure to raise interest rates from across the Pacific (particularly after the noted US-Japan currency intervention).
In credit markets, both investment grade and high yield bonds rebounded in August. Global investment grade spreads remained stable despite the lofty US hyperscaler issuance plans, while global high yield spreads narrowed again. Emerging market debt also outperformed, as the US dollar softened against some of the major emerging market currencies.
Conclusion
The global stock ascent resumed in August. There were still few signs of the US data centre build-out losing steam, which continued to boost technology sector profits. However, another month of varied technology stock performance suggests that investors remained cautious on calling the outright ‘winners’ of the AI trade. This backdrop is consistent with our Mid-Year Investment Outlook suggestion to adopt a selective approach across the AI supply chain. With broad gains seen across stock markets in August on the back of generally healthy economic data, staying geographically diversified may prove important—as we also noted. If technology euphoria or activity momentum were to falter, then we still think that government bonds offer good protection, even if the US Treasury continues to use unorthodox bond intervention policies.