YTD, global equity market returns nudged further into the teens (MSCI World +13.4%) after a strong August (MSCI World +2.6%). Market leadership rotated from the momentum-driven trading environment that has dominated performance for the past few months towards a more fundamentally driven market. US quality and growth stocks, which have been the YTD laggards, were the best-performing factors in August (Russell 1000 Growth +3.7%, Russell 1000 Quality +2.7%), while the global momentum factor which had been the stellar performer YTD (MSCI World Momentum +16.4% YTD through July) was the August laggard (+1.5% MoM), albeit still delivering a positive return for the month. At a stock level, the rotation was most pronounced amongst the US mega-cap tech companies. Nvidia, which had significantly lagged chipmaking peers YTD (7.8% YTD through July), bounced (+9.4% MoM) after announcing strong results and revenue guidance for the next financial year (+70% YoY), which was well ahead of analyst expectations (+45% YoY). Microsoft (10% MoM) continued its recovery after a poor start to the year (-23% for 1H16) as it extended a rally that started after the July earnings announcement, driving the share price back into positive territory for 2026 (+6% YTD). Alphabet, one of the few mega-cap winners from 1H26 (+14.3%), struggled in August (-5% MoM).
August started with positive rhetoric from US Treasury Secretary Scott Bessent and Qatari officials about the possibility of an imminent agreement to reopen the Strait of Hormuz that drove the price of Brent crude to below US$80/bbl. It soon became clear that the stalemate between Iran and the US would last longer than hoped as Washington attempted to increase pressure on Iran with the announcement of sanctions on nations doing business with them. The month ended with the US and Iran trading missile strikes and Brent crude oil back above US$90/bbl.
The US government’s 10-year borrowing rate ended the month roughly where it started (4.75% p.a.), still elevated relative to the 4.0% to 4.5% p.a. range it has been in for the past few years. Higher oil prices will add to pressure on the US Federal Reserve (Fed) to deal with an already sticky inflation challenge, and investors are now anticipating two US rate hikes by the end of the year. The Japanese government’s 10-year borrowing rate, which pushed above 2% p.a. at the end of last year (for the first time this century), edged towards 3.0% p.a. at month-end, a level it has not breached in over 30 years, adding upward pressure to global rates. The Japanese currency also continued to weaken (-1.5% MoM), despite the first joint US/Japan currency intervention in 15 years. The US$100bn of currency intervention deployed was not enough to stop further yen weakness. The US dollar was also generally weaker against most currency pairs in the month.
