Monthly Market Update August 2026
Stay informed with the latest news and insights from Oxonian Capital's Monthly Market Update.
August 2026 Update:
Market News
Equities
European equities outperformed their U.S. counterparts, with the Stoxx 600 rising +1.3% in July, extending its year-to-date return to +12.4% versus the S&P 500's +10.1%. The FTSE 100 was the best-performing major European index, up +3.6% in July (+11.5% YTD), supported by the oil majors and financials. Wall Street was more mixed, with the S&P 500 ending broadly flat (-0.1%), outperforming the Nasdaq (-3.2%) as investors reassessed AI and semiconductor stocks. The Philly Semiconductor Index suffered its worst month since 2008, down -20.6%, though a late rebound, fuelled by Microsoft's best trading day since 2008, offered some relief. Despite the falls, the index remains up almost +60% YTD. For similar reasons, volatility was raised in Asia, where South Korea's Kospi fell -22.2%, despite a +17.9% bounce on the last trading day, though it remains the best performing major index up +57% YTD. The strain on domestic Korean investors has been well reported, with high levels of margin trading amplifying falls. Japan's Nikkei lost -8.1%, while the Shanghai Composite fell -5.9% as PMIs slipped into contraction.
U.S. market breadth was healthier than headline tech declines suggest, with the equal-weight S&P 500 reaching a new high amid rotation into cyclical sectors. Valuations across parts of the AI supply chain remain stretched and we favour a selective stance.
Currency
The U.S. dollar lost ground against every G10 currency following the Fed's July meeting. The yen was the standout currency, up +3.3% against the dollar, having touched its weakest level since 1986. U.S.-coordinated intervention on 30th July drove the rebound. The yen remains important for global markets given the impact of the 2024 carry-trade unwind, still in recent memory. Sterling rose +1.7% against the dollar in July (flat YTD at +0.1%), while the euro gained +0.9% but remains down -1.9% YTD.
Bonds
Inflation dominated fixed income with the 30-year U.S. Treasury yield closing at a post-2007 high of 5.27%, while the 10-year Bund rose to a post-2011 high (3.20%) after the ECB signalled a September rate increase was likely. Government debt was broadly negative, with U.S. Treasuries returning -1.2% (-0.9% YTD), Gilts -1.7% (-1.7% YTD) and Eurozone sovereigns -1.7% (-0.5% YTD). Corporate bonds offered little respite, with U.S. and European investment grade down -1% and -1.6% respectively, and high yield both down -0.3% in July, though still up +1.5% YTD.
Alternatives
Oil was July's standout performer, with Brent crude rising +23.6% and WTI +21.8% as the U.S.-Iran conflict reignited. Brent briefly touched $100/barrel before retreating as signs of a pause emerged. Agricultural commodities also rallied, adding to inflationary pressures. Metals were mixed, with gold up +1.0%, silver down -1.7% and copper up +4.4%.
Macro News
Politics
The U.K. saw its fifth Prime Minister in as many years. Burnham’s initial agenda, including greater devolution, infrastructure and expanded public ownership – alongside a VAT cut on energy bills – was largely shrugged off by gilt markets. Attention now turns to how government plans can be funded.
In the U.S., President Trump declared that the memorandum of understanding agreed with Iran in June was “over”, triggering a resumption of strikes on both sides, although it has since been reported talks are due to recommence imminently.
With November's midterms approaching, there is an expectation of choppier U.S. equity trading as focus shifts from earnings to election positioning. The S&P 500 has historically returned close to zero between early August and election day since 1974, though gains typically follow once the result is known. Whilst the result itself may not be a major market driver – prediction markets imply an 85% probability Democrats retake the House, with the Senate close to 50/50 – but a government funding deadline in September, and shutdown risk, is a nearer-term concern. Separately, the IMF warned that rising NATO defence spending, while a near-term tailwind, is likely to widen fiscal deficits and lift public debt – a trade-off increasingly relevant given geopolitical tension.
Monetary Policy
July brought a run of ‘on-hold’ central bank decisions, delivered with markedly different signals. The Federal Reserve, under new Chair Kevin Warsh, offered little clarity on its response to new data, unsettling treasury markets despite rates being held steady. Markets see the Fed raising rates once for the rest of 2026, albeit that likelihood has reduced, with the rise in long-dated yields already tightening financial conditions and reducing the urgency for action. The ECB held rates but flagged a probable September rise, and the Bank of Japan left rates unchanged while signalling an autumn hike. The Bank of England held at 3.75% again, though two members voted for an immediate rise amid concerns over energy-driven inflation.
The International Monetary Fund's World Economic Outlook, published shortly before the escalation in Iran, identified the war as one of two key pillars shaping the global backdrop, alongside the AI investment boom. The IMF left its growth forecast broadly unchanged at 3.0% for 2026 and 3.4% for 2027, but revised inflation projections up to 4.7%. Whilst global inflation-linked bonds have not added any return YTD in dollar terms, that compares to major conventional government bonds that are down between -0.5% and -1.7% YTD, meaning inflation-linked bonds are offering some relative protection. Should the pause in hostilities hold, we would expect some of the reflationary pressure – particularly oil and long-dated yields – to ease. Escalation would likely see the opposite.
Chart of the Month
This month’s charts highlight how volatility picks up as U.S. midterm elections approach and the subsequent return profile. Whilst the returns must be heavily caveated on the basis past performance is not a guide to future returns, and it is a relatively small sample size, the below go some way to illustrate the point being made in the main body of text in this month’s commentary. Whilst history may be on investors’ sides, there remain plenty of risks out there, from geopolitical to market, that could unsettle markets this time around. It would not shock us to see President Trump alter his rhetoric on Iran if limited progress has been made as the midterms draw near, given polling data continues to show the population views the war as not worthwhile.
Sources: Marlin Capital and Group Finom on X, available at:
https://x.com/GroupFinom/status/2081714431105343682?s=20
https://x.com/Marlin_Capital/status/2081448193183674673?s=20
Market Data
