September 2026
US Economy: Cooler data, but no all-clear on inflation
August brought a more complicated economic picture. July payrolls fell 23,000, while May and June were revised lower by a combined 103,000; the unemployment rate nevertheless held at a relatively low 4.1%. Meanwhile, retail sales disappointed (-0.6% in July) as consumers continue to tighten their belts amid elevated inflation. Inflation data were more encouraging in aggregate, with headline CPI easing to 3.4% year over year. However, the Fed’s preferred Core PCE measure remained sticky at 3.3%.
US Stocks: AI leadership returns.
The S&P 500 shook off July’s technology selloff with software and AI-linked companies leading the recovery. The semiconductor index rose about 2% after falling roughly 19% in July, with Nvidia gaining approximately 10% following strong earnings. Beneath the headline indexes, however, the picture remained selective: only about half of S&P 500 companies advanced during the month. Small caps posted a much quieter result but remained the year-to-date leaders, with the Russell 2000 up roughly 20%.
Foreign Stocks: Asian markets split
International equities continued to participate in the broad rally, performing similarly to US large cap. After an exceptionally strong first half, the emerging markets lead equity asset classes in performance with Asian technology markets a volatile net positive for results: South Korean stocks rebounded late in the month as chip exports surged, though well below their June peak. Chinese equities surrendered much of July’s policy-driven bounce with weaker economic data and tech sector profit taking.
Fixed Income: Yields move up
Bond returns were roughly flat in August despite renewed pressure on longer maturities. The 10-year US Treasury yield finished higher at 4.7%, reflecting persistent inflation, heavy government and corporate borrowing, and uncertainty about the Fed. Fed Chair Kevin Warsh emphasized that inflation must move toward 2% more quickly, leaving a September rate increase firmly in the discussion. Meanwhile, investors met US Treasury announced plans to at least double the size of liquidity-support buybacks for long-term maturities with an initial, but only temporary, dip in yields.
Real Assets: Chokepoints return to the foreground
Commodities were among August’s strongest performers as the conflict with Iran again disrupted expectations for normal shipping through the Strait of Hormuz. Broad commodities gained roughly 10%, crude oil rose by a similar amount and Brent finished above $90 per barrel after renewed strikes at month end. US infrastructure struggled amid higher interest rates though the space continues to benefit from spending on power, data centers and domestic industrial capacity.
Alternatives: Hedge funds gain while private liquidity remains uneven
Hedge funds participated in August’s market recovery, with equity hedge, macro, event-driven and relative-value strategies all positive. Private markets continued to send a more mixed signal. Select large transactions and an improving IPO calendar created pockets of liquidity, but industry updates released in August emphasized that exits remain the binding constraint for many funds. Deal volume has been weaker even as average deal size has risen, and secondaries, continuation vehicles and other financing solutions are increasingly being used to bridge the distribution gap.
Equities Total Return
| AUG | YTD | 1 YR | |
|---|---|---|---|
| U.S. Large Cap | 2.7% | 13.1% | 20.3% |
| U.S. Small Cap | 1.0% | 20.2% | 26.6% |
| U.S. Growth | 3.6% | 4.5% | 11.0% |
| U.S. Value | 2.0% | 23.1% | 29.7% |
| Int’l Developed | 2.0% | 13.8% | 21.6% |
| Emerging Markets | 3.4% | 24.1% | 39.2% |
Fixed Income Total Return
| AUG | YTD | 1 YR | |
|---|---|---|---|
| Taxable | |||
| U.S. Agg. Bond | 0.4% | (0.3%) | 1.9% |
| TIPS | 0.0% | 0.5% | 1.1% |
| U.S. High Yield | 1.0% | 2.6% | 4.8% |
| Int’l Developed | (0.6%) | (2.0%) | (1.9%) |
| Emerging Markets | 0.3% | 1.7% | 2.4% |
| Tax-Exempt | |||
| Intermediate Munis | 0.5% | 0.5% | 1.8% |
| Munis Broad Mkt | (0.1%) | 0.3% | 4.3% |
Non-Traditional Assets Total Return
| AUG | YTD | 1 YR | |
|---|---|---|---|
| Commodities | 7.4% | 32.1% | 42.8% |
| REITs | (2.7%) | 14.5% | 12.5% |
| Infrastructure | (2.3%) | 7.7% | 11.9% |
| Hedge Funds | |||
| Absolute Return | 0.5% | 1.4% | 3.3% |
| Overall HF Market | 0.9% | 4.5% | 7.0% |
| Managed Futures | 2.1% | 10.3% | 17.6% |
Economic Indicators
| AUG-26 | FEB-25 | AUG-25 | |
|---|---|---|---|
| Equity Volatility | 14.9 | 19.9 | 15.4 |
| Implied Inflation | 2.3% | 2.3% | 2.4% |
| Gold Spot $/OZ | $4437.4 | $5278.9 | $3448.0 |
| Oil ($/BBL) | $90.5 | $72.5 | $68.1 |
| U.S. Dollar Index | 118.7 | 117.9 | 120.6 |
Our Take
August’s market gains were reassuring, but the month was not as carefree as the index returns suggest. Technology leadership recovered, developed international stocks advanced and hedge funds added to gains. At the same time, payroll growth weakened, inflation remained above the Fed’s objective, oil climbed and long-term Treasury yields finished near recent highs. Markets demonstrated resilience in the face of those crosscurrents, which is different from saying the risks disappeared. The most useful reading of the month is that investors continue to reward earnings and durable growth, but are demanding more compensation when inflation, financing or geopolitical exposure becomes harder to ignore.
The common thread connecting many of those crosscurrents is a shift from a world organized around efficiency to one placing a higher value on resilience and self-sufficiency. Fed Chair Warsh described the global economy as moving from a savings glut toward an investment surge. That is visible in the simultaneous buildout of AI infrastructure, electricity generation and transmission, domestic manufacturing, defense capacity, traditional infrastructure and more redundant supply chains. Establishing resilience usually means building more capacity, maintaining more inventory and accepting higher upfront costs. It can therefore be somewhat inflationary and capital intensive, but it also creates a broader opportunity set than the narrow group of companies most directly associated with AI.
The Strait of Hormuz is a vivid example of why that spending may endure after the immediate crisis fades. Iran’s ability to disrupt a route that historically carried roughly one-fifth of global oil supplies turned a military conflict into an economic chokepoint affecting energy prices, other commodity inputs to production, shipping, insurance and inflation expectations. The precise path of the conflict is impossible to forecast, but the response is more observable: countries and companies will seek alternative routes, multiple energy sources, strategic inventories and greater control over critical inputs. Similar lessons are being drawn from Ukraine, semiconductor concentration and the growing demands placed on power grids by AI. Once a dependency has become visible and costly, returning completely to the prior arrangement is unlikely to be the preferred strategy.
This more capital-intensive regime also helps explain why the bond market has been unsettled. Large fiscal deficits, heavy corporate issuance and competition for capital from AI and other investment projects can keep longer-term rates elevated even if short-term inflation gradually improves. Treasury buybacks may support liquidity at the margin, but they cannot substitute for fiscal discipline or remove term-premium risk. Even so, volatility is not the same as a debt crisis, nor does it mean high-quality bonds have stopped doing their job. Yields are materially more attractive than they were before Covid, and bonds continue to provide income, liquidity and a source of funds for portfolio withdrawals. Real assets and diversifying strategies can complement that ballast when inflation causes stocks and bonds to move together.
For portfolios, the answer is not to chase August’s winners or attempt to predict the next geopolitical headline. It is to maintain multiple sources of return and risk while positioning thoughtfully for the adaptations already under way. That includes exposure to the less glamorous infrastructure supporting innovation—power generation, electrification, transmission, storage and critical materials—as well as areas aligned with national-security priorities and the emerging space ecosystem. It also means retaining high-quality fixed income, diversifiers and international investments rather than asking public U.S. equities to carry the entire load. In a world where resilience is commanding a higher premium, disciplined portfolio construction is not merely defensive; it is how investors participate in the capital spending the new regime requires.
