August Market Recap
After two consecutive negative months, US equities finished higher in August to end the summer on a positive note. Unfortunately, inflation concerns are also trending higher, which means Federal Reserve policy will go a long way toward paving the market’s path between now and the midterm elections.
Another month with very little progress in Iran means a growing realization that oil prices will remain higher for longer. That outlook helped Energy (+6.5%) finish as the best-performing sector in August. Technology (+6.2%), Materials (+5.8%), and Healthcare (+4.8%) also delivered strong returns.
Utilities (-5.2%), which often drift lower during periods of rising bond yields, were the worst performers last month.
Benchmark Returns: August 2026 | YTD 2026
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Dow Jones
|
S&P 500
|
NASDAQ
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+1.34% | +10.66%
|
2.62% | +12.28%
|
3.93% | +13.46%
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|---|
“We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do.”
Those are the words of Fed Chair Kevin Warsh, delivered August 28 at the Fed’s annual policy symposium in Jackson Hole, Wyoming. Warsh’s remarks were mostly hawkish, meaning they suggest the Fed is leaning toward rate hikes in the near future. Implied odds of a hike following the Fed’s September 15-16 meeting are now greater than 50%.
Annual inflation has remained well above the Fed’s 2% target for years. That was the case before the war in Iran disrupted global energy supplies. And inflation is even more stubbornly elevated today. West Texas Intermediate Crude oil ended August just above $90 per barrel, up 7% from a month earlier.
Higher bond yields are another direct consequence of the evolving inflation outlook. Ten-year US Treasury yields rose to 4.76% on August 31, their highest mark since January 2025. It’s been nearly 20 years since 10-year Treasury yields eclipsed 5%, but we are getting close to those levels already.
The US Treasury Department responded to climbing yields by announcing plans to double its bond buyback operations, although the news had minimal effect on bond markets. It doesn’t help that the US federal debt topped $40 trillion for the first time in August. More deficit spending by our government tends to be inflationary as well.
Despite the looming questions about monetary and fiscal policy, US corporations continue to report record earnings. Cumulative earnings for S&P 500 companies grew a 52% in the second quarter (compared to a year earlier). FIFTY-TWO PERCENT. It’s the highest year-over-year earnings growth in five years (Q2 2021), when companies were rebounding from pandemic lows. The incredible earnings momentum has prevented the stock market from a more serious correction, but that burden will grow heavier if the inflation outlook continues to darken.
Headline inflation numbers remained relatively steady in August. The latest Consumer Price Index (CPI) showed 3.4% inflation from a year ago (down from 3.5% a month earlier). The Personal Consumption Expenditures (PCE) index was up 3.7% from a year ago (unchanged from a month earlier).
International equities trended higher last month. Non-US Developed Markets were up 1.8%. Emerging Markets gained 4.6%, regaining much of their losses from an ugly July. Small-cap US stocks offered similar returns to large-cap US equities. The Russell 2000 index increased 0.9%.
Gold prices climbed 9.4% in August up to $4,430/ounce. This after falling below $4,000/ounce in mid July.
Ben Marks
Chief Investment Officer
Brett Angel
Senior Wealth Advisor
Investment Advice offered through Marks Group Wealth Management, a Registered Investment Advisor.
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