August 2026 Review and Outlook

August underscored a widening divergence in policymakers’ approach to markets with an unmistakably active Treasury paired with a Federal Reserve that, under Chair Kevin Warsh, has talked tough but, for a fifth consecutive meeting has taken no action on rates. On Aug. 19, Treasury Secretary Scott Bessent unveiled an expanded long-end buyback program, dubbed the “Treasury Twist,” which doubles the size of liquidity-support purchases for 10- to 30-year off-the-run coupons to at least $4 billion per operation beginning Sept. 9. It was the latest in a string of recent Treasury actions, including joint U.S.-Japan yen operations in late July and early August, fresh GENIUS Act stablecoin proposals, and an “economic D-Day” sanctions campaign targeting Iran’s trading partners. By contrast, Fed Chair Kevin Warsh continued hawkish rhetoric across two Federal Open Market Committee meetings and during his Jackson Hole speech, but so far has taken no action on rates despite elevated inflation. His hawkish Jackson Hole address on August 29^th reaffirmed the Fed’s 2% inflation target and warned that recent softer inflation prints may not reflect genuine improvement in the underlying trend. Rates responded swiftly to the upside, more so on the short end of the curve (bear flattening), as probabilities for a September rate hike spiked from 36% to 67%.

The 30-year UST yield topped at 5.34% last month, its highest level since the summer of 2007, while the 10-year UST yield, at 4.76%, reached a 17-month high. For rates, the path of least resistance remains higher, driven by rising fiscal deficits and Treasury supply, inflation pressures tied to tariffs, energy prices and AI-related buildout, and a fast-growing wall of AI-linked corporate debt competing directly with Treasuries for duration demand. More than half of 2026’s mega-cap technology bond financings have carried maturities of 10 to 50 years, positioning hyperscaler balance sheets as a structural competitor to the long end of the UST curve. Layered on top of this are the ongoing U.S.-Iran conflict and a federal debt load that has surpassed $40 trillion. Persistent fiscal excess, elevated energy prices and record AI capital issuance are crowding out Treasuries at precisely the moment the Fed has signaled it may need to tighten rather than ease.

The S&P 500 (+2.7%) and Nasdaq-100 (+4.2%) posted their best August performance since 2021, with the Nasdaq-100 snapping two consecutive months of losses. The Magnificent Seven (+4.4%) and NDX Equal Weight (+4.1%) led the flagship complex, while the more cyclically oriented Dow Jones Industrials (+1.5%) and S&P Midcap 400 (+0.1%) lagged. Leadership was driven by industries connected to the debasement trade such as gold miners (GDX +33%), oil services (OIH +12%), and software (+16%). 

The iShares Software ETF (IGV) declined 37% from its Q4 2025 highs to its low in April. However, over the ensuing four months, it has rebounded 50%. It closed out August at a key technical level representing its high from 2024, which could prove to be a formidable test of resistance in the near term.

On a year-to-date (YTD) basis, small- and micro-cap benchmarks continue to lead the flagship complex, with the Russell MicroCap Index (+23.9%) and Russell 2000 (+20.2%) both outpacing the Nasdaq 100 (+17.1%) and S&P 500 (+13.1%).

Growth & Value

Growth reasserted leadership throughout August, driven by the ongoing recovery in software and hyperscaler stocks, as well as stability in semiconductors, which had previously corrected 25% over six weeks from mid-June to late July. The Russell 1000 Growth Index (+3.7%) outpaced Russell 1000 Value (+2.0%) by 170 basis points, while Russell 2000 Growth (+1.6%) similarly outperformed Russell 2000 Value (+0.4%) among small caps.

Value’s longer-term edge remains firmly intact, as Russell 1000 Value’s 23.1% YTD total return is nearly six times that of Russell 1000 Growth (+4.1%), and Value continues to lead across the 3-, 6-, and 12-month windows for both large- and small-cap benchmarks. Growth’s relative strength peaked in October 2025 and has since been in a downtrend. In late July, the ratio (Growth / Value) touched its lowest level since April 2024 (27 months), where it then reached a cluster of technical support representing lows from 2024 and 2025, its post-COVID high from November 2021, and the 50% Fibonacci retracement from the prior cyclical uptrend spanning December 2022 into October 2025. While its longer-term 40-week moving average is in a downtrend, reflecting the turn toward Value outperformance, the ratio could stabilize here along the cluster of support.

Large-Cap Sectors

Large-cap sector performance was led by Energy (+7.0%), which extended its commanding 2026 advance to 44.2% YTD, nearly double any other S&P 500 sector, as renewed Strait of Hormuz hostilities and a late-month oil price spike (WTI settled near $86 on Aug. 31, with Brent back above $90) reinforced the sector’s leadership. Technology (+6.2%), Materials (+5.9%), Healthcare (+4.9%), and Financials (+1.3%) rounded out the sectors in the green. Five of 11 sectors finished the month negative, led by Utilities (-4.8%) and Industrials (-2.6%).

Small-Cap Sectors

Small-cap sector performance broadly mirrored the large-cap complex. Energy (+8.2%) and Materials (+7.9%) led amid the same commodity tailwinds, followed by Healthcare (+5.8%) and a more modest gain in Technology (+1.5%). Six of 11 Russell 2000 sectors finished in the red, led by REITs (-4.4%) and Communications (-4.3%), both pressured by higher long-end yields, while Utilities (0.0%) was roughly flat.

Rates, Commodities, and the Dollar

Rising rates have been a global phenomenon across the largest global economies. The 10-year yields for the U.K., France, Canada, Germany, and Japan are all making five-year highs, while the U.S. is less than 25 basis points from doing the same.

Commodities and the dollar told a related story. The Dollar Index (DXY) fell 0.5% in August, its second consecutive monthly decline. For the second consecutive month, the Bloomberg Commodity Index (BCOM) rose more than 7% and is now testing highs previously set in March 2022 (Russia-Ukraine conflict) and March-May 2026 (U.S.-Iran conflict). Gold (+9.7%) and silver (+15.6%) rallied sharply, while bitcoin (+25.4%) had its best month since November 2024 amid a resurgent “debasement trade.” While bitcoin has broken out from its declining price channel stemming from the October 2025 high, it is now testing a key technical level in the $80,000–$81,000 range, which previously acted as both support and resistance on numerous occasions over the prior 18 months.

Looking Ahead  

Heading into September, markets face a potential Fed hike alongside a Treasury that continues to lean on buybacks, bill issuance and stablecoin-driven demand to manage its funding needs, an approach that has yet to meaningfully lower long-end yields. September also brings the start of Treasury’s expanded buyback program, effective Sept. 9, and the Bank of Japan’s Sept. 18 policy decision, both of which carry the potential to move the long end of the curve further. With Q3 GDP tracking at 4.61% per the Atlanta Fed’s GDPNow model — nearly double the 2.4% Bloomberg consensus — and the U.S.-Iran conflict showing few signs of resolution after its late-August flare-up, the combination of resilient growth, sticky inflation and elevated geopolitical risk premia suggests the “higher-for-longer” narrative in rates is likely to persist, even as equity markets continue to look through much of the noise.

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