LCI Monthly – Markets in August 2026

‍Executive Summary

Global equities advanced in August, the World index rising +2.6% in USD, but the leadership was not where the year’s narrative would suggest. Materials was the best sector by a distance, up more than 9%, powered by a roughly 9% jump in gold as concerns over US fiscal conditions and dollar debasement mounted; Information Technology rebounded close to 6% as blockbuster Big Tech earnings carried the S&P 500 to three all-time closing highs. The counterweight was rates: inflation fears, renewed Middle East supply disruption and hawkish remarks from Chair Warsh at Jackson Hole pushed long-dated Treasury yields to multi-year highs and lifted the odds of a September Fed hike, punishing the bond-proxy sectors. Fixed income nonetheless ended positive in dollars and slightly negative in euros, while the dollar softened against most currencies but firmed against the yen and the Swiss franc.

Equity Markets – Regional Performance

1-month returns in local currency

North America

The United States rose close to 3%, a turbulent month that ended well: inflation fears, rising expectations of Fed rate hikes and fiscal deficit concerns drove long-term Treasury yields to multi-year highs, yet blockbuster earnings from Big Tech propelled the S&P 500 to three all-time closing highs before losses on the final trading day as Middle East tensions flared. Breadth, however, narrowed again — for the second consecutive month mid- and small-caps underperformed large caps by around 3%, and High Beta and Growth led the factor table while Low Volatility was the only reported factor to lose ground. At 27.1× earnings the US remains the most expensive major market in the universe. Canada gained roughly 2.5%, an unusually lopsided result: its Materials sector surged nearly 26% on a 32% rally in gold miners and a 14% gain in base metals, while Financials fell close to 3% and were the largest single drag on the index.

Europe

Europe was firm at the top and fractured at the bottom, and the regional aggregate barely moved: the S&P Europe 350 rose just 0.5%, with Germany the largest positive country contribution and France the largest drag. Germany led the region, up close to 3%, and remains modestly valued at 16.2× earnings; Spain and the Eurozone aggregate each added a little over 1%, and Italy close to 1%. The United Kingdom and Switzerland were both roughly flat, the latter’s defensive pharmaceutical-and-staples core out of step with a month led by miners and chipmakers. France was the worst market in the universe, down roughly 2%, as a budget deficit above 5% of GDP, mounting debt-servicing costs and the politics of the 2027 presidential race pushed French government bond yields to their highest since 2008, with the luxury heavyweights that dominate the index falling alongside; French government bonds were also the weakest of the large eurozone sovereigns. Sector leadership inside Europe only partly matched the global picture — materials led and technology recovered close to 4% — but more than half of European sectors fell, real estate dropped more than 5%, and energy finished the month negative even as the global energy sector rose. The backdrop turned less comfortable at month-end: eurozone inflation jumped to 3.3% in August from 2.9% in July, driven by a 14.3% year-on-year surge in energy prices after renewed disruption to Strait of Hormuz shipping, and markets moved to price a 25 basis-point ECB hike at the 10 September meeting.

Asia-Pacific

Japan was the best market of the month, up around 3.5%, with the TOPIX reaching record highs on demand for semiconductor and AI-related shares and a rally that broadened into financials, materials and energy; ten of eleven domestic sectors gained, and the prospect of a Bank of Japan hike as soon as the September meeting supported bank margins even as it kept Japanese government bonds under pressure. South Korea rose around 1.5%, helped by foreign inflows into its semiconductor and AI names and by the Bank of Korea’s 25 basis-point hike to 3.00% on 27 August, which lifted its 2026 growth forecast to 3.3%. The rest of the region lagged: India fell around half a percent, held back by persistent foreign selling — roughly USD 25 billion of Indian shares sold year-to-date — demanding valuations at 23.9× earnings and little exposure to the AI theme; China slipped roughly three-quarters of a percent despite a manufacturing PMI at a one-year high of 50.4, as Middle East tensions overshadowed the domestic data, though at 14.1× earnings it stays conspicuously cheap. Australia was close to flat and Indonesia fell around 1.5%.

Latin America

Latin America was the weak spot. Brazil rose roughly three-quarters of a percent, supported by a fourth consecutive Copom cut taking the Selic to 14%, and remains the cheapest market in the universe at 10.1× earnings. Mexico fell roughly 2%, the second-worst market of the month, with Banxico holding its policy rate at 6.50% and signalling no preset path even as it raised its 2026 growth forecast; a firmer peso offered no help to local index returns.

Equity Markets – Sector Performance

1-month returns in USD

Materials led by a wide margin, up more than 9% — the largest percentage move in the table — as gold rose around 9% on concerns over US fiscal conditions and dollar debasement, dragging miners sharply higher. But the sector is a small slice of the index, and the month’s real engine was elsewhere: Information Technology, up close to 6%, is the heaviest sector in the World index and by weight contributed far more to the advance than Materials did, rebounding on Big Tech results. Energy added around 4.5%, tracking crude higher after the escalation around the Strait of Hormuz took Brent above USD 90 by month-end, and Health Care close to 4%.

The laggards were the rate-sensitive defensives, in line with a month in which long-dated Treasury yields reached multi-year highs. Utilities were the worst sector, down around 3.5%, followed by Consumer Staples, down around 1.25%, and Communication Services, down under 1%; Industrials and Consumer Discretionary were roughly flat. Financials gained only around 1%, a modest showing for a sector usually favoured by higher-for-longer pricing. Valuations remain the standing risk in the leadership: Information Technology trades at 33.9× earnings and Consumer Discretionary at 31.9×, against 15.3× for Financials and 19.9× for Energy.

Fixed Income

Bonds diverged by currency. In dollars the month was positive despite the yield pressure at the long end: US high yield led, up around 1% (yield-to-maturity 7.1%), with investment-grade corporates up under half a percent (5.2%) and Treasuries returning roughly a third of a percent (4.4%) — essentially their carry, with the long end doing the damage. Emerging-market debt in USD followed, sovereigns close to 1% (5.8%) and corporates around half a percent (6.1%).

Europe was the mirror image. Eurozone government bonds were the weakest segment anywhere, down around half a percent (3.1%), and EUR investment grade was slightly negative (3.4%), as the August inflation jump to 3.3% pulled a September ECB hike into view; only EUR high yield finished positive, up around 0.5% (4.8%), helped by a tightening in European credit spreads — iTraxx Europe narrowed close to 3 points and Crossover more than 11 — even as sovereign yields rose. The pattern of recent months held: where yields pushed higher, duration hurt and carry protected.

Forex

The dollar was softer against most currencies but not all. The euro firmed around 0.5% to roughly 1.16, ending August with a gain as ECB tightening moved back onto the table. The clear outlier was the Korean won, up close to 5% against the dollar to around 1,373 — the strongest major Asian currency — on the Bank of Korea’s rate hike, foreign inflows into semiconductor and AI names and large corporate buyback-related conversion flows. The Australian and Canadian dollars and the Mexican peso each gained roughly 1–2%, while the Brazilian real lost around 2%.

Against that, the yen weakened around 1.5% to just under 160, slipping past that level late in the month as hawkish Fed rhetoric outweighed Bank of Japan hike expectations. The Swiss franc was the other laggard: USD/CHF edged up around 0.25% to 0.81 and EUR/CHF rose close to 1% to 0.94, with the Swiss National Bank expected to hold at zero and the franc increasingly used as a funding currency. For a franc-based investor the cross-rates were mildly helpful — European and US equity gains were modestly amplified in CHF terms, and won exposure added around 5% — while yen exposure cost roughly 1%.

Outlook

September opens with the rates question unresolved and the equity leadership unusually broad-based in name only. The market is now pricing a meaningful chance of a Federal Reserve hike, the ECB is expected to move on 10 September and the Bank of Japan may follow mid-month — three central banks tightening into an energy-driven inflation impulse rather than easing into a slowdown, which keeps upward pressure on yields and on the longest-duration parts of both bond and equity markets. Against that, the two forces that carried August are genuine: AI-related earnings delivered, and the gold and materials rally reflects a real bid for hard assets against fiscal and currency concerns rather than a speculative flourish. The risks are equally clear — technology at 34× earnings leaves little room for disappointment, Strait of Hormuz disruption remains an open-ended inflation risk, and France is a reminder that fiscal politics can reprice a market quickly. Diversification across regions, sectors and currencies did real work this month, and continues to look like the right posture.

La Côte Invest SA – Monthly Markets Commentary, August 2026.

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