The Quick Facts
- A traditional growth portfolio of 70% global equities and 30% U.S. bonds gained 2.0% in August. It is now up 9.9% year-to-date and 16.2% over the past twelve months.
- U.S. equities advanced broadly. The S&P 500 gained 2.7%, the Nasdaq 100 rose 4.2%, and the Russell 1000 Growth Index gained 3.7%.
- Second quarter earnings were exceptional. S&P 500 earnings grew nearly 38% from a year ago, and approximately 86% of companies exceeded expectations.
- Energy gained 7.4%, Technology rose 6.4%, and Health Care advanced 4.9%. Utilities and Industrials declined.
- Emerging markets gained 3.4% and are now up 24.1% year-to-date. Developed international equities gained 2.0% in August.
- Bonds posted modest gains despite slightly higher Treasury yields. The Federal Reserve continues to focus on bringing inflation down.
- August was another reminder that markets can advance even when the headlines remain unsettling.
August Asset Class Performance
Markets regained momentum in August despite renewed geopolitical uncertainty late in the month. U.S. and emerging-market equities advanced, growth stocks rebounded, and most bond markets posted modest gains. A traditional growth portfolio gained 2.0% during the month and is now up 9.9% year-to-date. Returns came from several areas of the market, which is exactly what investors should want from a diversified portfolio.
Strong earnings provided important support. S&P 500 earnings grew nearly 38% from a year ago, the strongest growth since 2021, and approximately 86% of companies exceeded expectations. The S&P 500 gained 2.7%, while the Nasdaq 100 rose 4.2%. Value stocks continue to lead growth stocks by a wide margin for the year. Leadership can change quickly, so we do not believe investors should chase whichever area has performed best most recently. Owning both remains the more dependable approach.
Performance also varied considerably across sectors. Energy, Technology, and Health Care advanced, while Utilities, Industrials, and Real Estate declined. Emerging markets gained 3.4% and are now up 24.1% year-to-date. These differences are a useful reminder that diversification helps reduce the risk of relying too heavily on one company, sector, country, or investment style.
Bonds generated modest gains even as Treasury yields moved slightly higher. The Bloomberg U.S. Aggregate Bond Index gained 0.4%, while high-yield bonds advanced 1.0%. Today’s higher yields provide more income and may offer a better starting point for future returns than investors had when interest rates were near zero. Bonds continue to provide income, stability, and liquidity within balanced portfolios.
The Federal Reserve did not change interest rates in August. Chair Kevin Warsh acknowledged the economy’s resilience but emphasized that inflation remains too high. Rather than trying to predict each Federal Reserve decision, we prefer to maintain balanced exposure, collect available income, and keep portfolios aligned with long-term goals.
Gold and oil continued to benefit from geopolitical uncertainty, while Bitcoin rebounded sharply. These investments can provide additional diversification, but they should not replace productive assets such as equities and income-producing bonds.
August was another reminder that markets can advance even when the headlines remain unsettling. Strong earnings, broader market participation, and higher bond income continue to support diversified portfolios. Investors should remain focused on their long-term investment mix, maintain adequate liquidity, and rebalance when markets create opportunities. A well-built portfolio does not require perfect forecasts or perfect timing. It requires patience, discipline, and enough diversification to navigate changing market conditions.
Chart of the Month – Interest Expense and Defense Spending as a % of Tax Revenue
The cost of servicing the federal debt is rising quickly. Interest expense now consumes 19.7% of federal tax revenue, more than double its 2022 level and above the 17.9% spent on defense. Together, interest and defense now absorb nearly 38 cents of every federal tax dollar.
The increase reflects both a larger federal debt and higher borrowing costs. As older debt matures, the government must often replace it with more expensive debt. This could keep interest costs elevated even if the Federal Reserve gradually lowers short-term rates.
This does not mean a U.S. debt crisis is imminent. The United States continues to benefit from deep capital markets and the dollar’s reserve currency status. However, large deficits could keep longer-term interest rates higher and create periods of volatility. Investors should remain realistic, diversified, and prepared for a world in which interest rates do not return to zero.
Quote of the Month
Blessed are the young, for they shall inherit the national debt.” – Herbert Hoover (31st president of the U.S., serving from 1929 to 1933).
Curated by Julien Frazzo, Deputy Chief Investment Officer, and Michael G. Dow, CAIA, CFA®, Chief Investment Officer.
Related Links
Beacon ‘Pointe of View’ – A Market Update August 2026
Macro & Markets: August 2026 – An Update from Beacon Pointe CIO
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