Hello,

August was a positive month for markets overall, but the defining feature was actually the breadth of returns. Japan, emerging markets, Pacific ex Japan, and global smaller companies were among the stronger equity markets. US equities also rose, European equities made modest progress, and closer to home, UK equities were broadly flat. And that continued a theme seen throughout 2026, which was that of changing market leadership.

Market leadership has become less concentrated in August, while for the past few years, a small group of very large US technology companies has really dominated returns. In August, performance broadened across regions, sectors, and market capitalization. The AI theme, of course, remains important, but investors became much more selective about where the strongest returns from significant AI infrastructure spending will ultimately accrue.

Technology and AI-related shares were therefore volatile during the month as the focus shifted from the scale of the investment to the timing and distribution of eventual returns. And that was particularly relevant for semiconductor and hardware companies that already performed strongly earlier in the year.

Nevertheless, across the board, including those companies, corporate earnings remained supportive for markets.

The macro backdrop was shaped really by the continued tension between the US and Iran, and that kept a geopolitical premium in energy markets and revived concerns about supply and shipping through the Gulf.

Oil finished only modestly higher over the month, though. But that did mask considerable volatility, prices falling early in August as hopes of de-escalation improved and then going higher as prospects for a lasting resolution weakened. And that mattered because higher energy prices complicate the inflation outlook, just as central banks had hoped inflation would continue to fall.

I think the most important development was in government bonds, which are loans investors make to governments. Overall returns from bonds changed little. Returns from government bonds and higher-risk company bonds were broadly unchanged. Bonds from companies with stronger credit ratings, and debt from emerging-market countries, made small gains.

These overall results hid a bigger change in government bonds that will not be repaid for many years. Their yields—the annual income they offer compared with their market price—rose sharply in the US, Europe, Japan and the UK.

In the US, the yield on 30-year government bonds briefly reached 5.34%, its highest level since 2007. This was not just about expectations for the central bank’s next interest rate decision. Investors wanted higher returns for lending money over a long period. They were concerned about uncertainty over inflation, the large gap between government spending and income, and the large amount of new government debt being sold.

The UK saw a similar rise, with local concerns also playing a part. Yields on 10-year UK government bonds, known as gilts, stayed at or above 5% for much of August. The 30-year gilt yield came close to 5.8%. Concerns about inflation and government borrowing, together with closer attention to the public finances ahead of the autumn Budget, made investors more sensitive to these risks.

Bonds due to be repaid sooner were less affected. Regular interest payments helped support overall bond returns. The extra yield investors demanded for holding company bonds rather than government bonds remained fairly stable. Statements from central banks added uncertainty.

Kevin Warsh, Chair of the US central bank, the Federal Reserve, repeated his determination to bring inflation under control. However, he gave no clear indication of the bank’s next step. Investors took his comments as a sign that the bank favoured higher interest rates to tackle inflation. They therefore expected further US interest rate rises to come sooner.

More broadly, rate expectations have changed significantly this year. Earlier in the year, markets focused on when major central banks might begin cutting rates. By the end of August, investors were instead pricing further hikes from some of the major central banks.

The Bank of England was expected to remain on hold in the near term, but the possibility of tightening in the future has now returned to the agenda. 

Gold was indeed the standout asset, rising close to 10% in sterling terms. It benefited from geopolitical uncertainty, fiscal concerns that we’ve just mentioned, and periods of dollar weakness and of course, continuing central bank demand.

Overall, August reinforced the value of diversification. Equity participation broadened, credit remained resilient, and gold, as mentioned, just provided meaningful support.

Kind regards,

iPensions Wealth Team

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