August Monthly Market Review
Beyond Big Tech: Markets Adjust to Higher-for-Longer Rates
Higher energy prices reignited inflation concerns
Commodities emerged as the strongest-performing sector
European and emerging markets led equity returns
The Balanced portfolio benchmark returned 1.46% in August, as the average balanced portfolio gained from tailwinds in global equities and commodity related sectors.
Inflation and Interest Rates.
UK.
In August 2026, the kept Bank Rate at 3.75%, with most economists expecting rates to remain unchanged through year-end despite growing inflation concerns. Policymakers judged the UK economy to be broadly resilient, although some MPC members favoured a further rate increase.
Meanwhile, UK inflation moved higher, with CPI estimated to have risen to 2.90% in July (reported in August) from 2.60% in June, driven in part by higher energy prices following disruptions in Middle East oil markets. Inflation expectations also increased during August, raising concerns about more persistent price pressures.
U.S. Federal Reserve.
In August 2026, US interest rates remained elevated and investors increasingly anticipated a further Federal Reserve rate increase as inflation pressures proved more persistent than expected.
Consumer prices accelerated during the month, with headline CPI rising 0.40% month-on-month and 3.40% year-on-year. Core CPI increased 0.30% over the month, exceeding expectations, while higher energy prices, particularly gasoline, contributed to renewed inflationary pressures. As a result, markets increasingly expected the Fed to maintain a restrictive monetary policy stance and potentially deliver an additional rate hike in the coming months.
European Central Bank (ECB).
In August 2026, the European Central Bank (ECB) left its deposit rate unchanged at 2.25%, having paused after a June rate increase. However, policymakers signalled that persistent inflationary pressures, particularly from higher energy prices, made a further rate hike likely. Markets increasingly expected the ECB to raise rates to 2.50% at its September meeting.
Inflation accelerated across the euro area, rising to 3.30% in August from 2.90% in July. The increase was driven primarily by higher oil and gas prices, while core inflation eased slightly to 2.40%, suggesting underlying price pressures remained relatively contained. Nonetheless, headline inflation remained well above the ECB's 2.00% target.
Market performance.
Developed markets.
Top Performer – MSCI Ireland (+8.12%)
Ireland was the strongest developed market in August, benefiting from broad optimism towards European equities as improving economic data, strong corporate earnings and significant investor inflows supported the region. European markets were also helped by a clearer monetary policy outlook and relatively limited exposure to recent technology-sector volatility.
Bottom Performer – MSCI France (-1.77%)
France was the weakest developed market in August, with investor sentiment pressured by concerns surrounding fiscal sustainability and political uncertainty ahead of the 2027 presidential election cycle. These factors weighed on the French equity market, causing it to underperform both regional and global peers.
Emerging Markets.
South Africa (+10.56%) was the strongest-performing emerging market in August, supported by improving risk appetite, a softer US dollar, and strong demand for commodity-linked and financial stocks. Emerging markets broadly benefited from growing expectations of interest rate cuts in developed economies.
The Philippines (-8.04%) was the weakest performer, reflecting investor concerns over economic growth and regional market sentiment. Other Latin American and Southeast Asian markets, including Colombia (-5.12%) and Thailand (-2.70%), also struggled despite broader strength across emerging market equities.
Sector performance.
Top Performer – UT Commodity/Natural Resources (+10.66%)
Commodity and natural resource funds were the strongest-performing sector in August, benefiting from higher energy prices and ongoing geopolitical tensions in the Middle East, which supported oil and broader resource-related equities.
Bottom Performer – UT Listed Property (-2.57%)
Listed property was the weakest-performing sector in August, as higher bond yields and persistent inflation concerns weighed on real estate valuations. Property securities generally underperformed as investors remained cautious towards interest rate-sensitive assets.
Source: FE FundInfo, 06/09/26
Summary.
Markets were mixed as rising energy prices reignited inflation concerns across major economies, prompting central banks to maintain a cautious stance and reinforcing expectations for a higher-for-longer interest rate environment. he Federal Reserve signalled a willingness to tighten policy further, while the Bank of England and ECB maintained a cautious stance and emphasised ongoing inflation risks.
Market leadership broadened beyond the large technology stocks that have dominated returns in recent years. Commodity-linked sectors and markets benefited from higher oil prices, while UK equities and selected emerging markets delivered resilient performance. In contrast, technology, semiconductor, and AI-related stocks corrected sharply, highlighting concentration risks and underscoring the importance of diversification.
Despite ongoing challenges from inflation, restrictive monetary policy, and geopolitical uncertainty, the widening breadth of market performance suggests investors may increasingly find opportunities across a broader range of regions, sectors, and asset classes.
Sources.
The ‘Balanced portfolio benchmark’ is the UT Mixed Investment 20-60% Shares Sector.
POLL Bank of England to hold rates for remainder of year despite inflation risks; Nushaiba Iqbal; Reuters; 18 August 2026
UK inflation expectations rise in August after recent falls, Citi/YouGov survey shows; Reuters staff report (writing by William Schomberg); Reuters; 25 August 2026
US consumer prices accelerate in August, push Fed closer to rate hike; Lucia Mutikani; Reuters; 11 September 2026 (reporting on August 2026 inflation data).
Inflation persisted in August, potentially locking in a Fed interest rate hike; Jeff Cox; CNBC; 11 September 2026 (reporting on August 2026 CPI data and Fed expectations)
US consumer prices accelerate in August, push Fed closer to rate hike; Lucia Mutikani; Reuters; 11 September 2026.
Fed policymakers forecast one more rate hike this year; Michael S. Derby; Reuters; 16 September 2026
War-hit European markets are far from down and out; Sophie Kiderlin, Johann M Cherian and Amanda Cooper; Reuters; 21 August 2026.
Europe's STOXX 600 slides as France's fiscal, election risks rattle investors; Tharuniyaa Lakshmi and Utkarsh Hathi; Reuters; 27 August 2026
Tradingeconomics.com, September 2026 https://www.istockphoto.com/
