Investment Market Commentary – August 2026

The second quarter of 2026 demonstrated the resilience of global markets, with investors continuing to benefit from positive economic growth, strong corporate earnings and increasing innovation despite a complex geopolitical backdrop.

The conflict in the Middle East, inflation, and the rapid growth of AI all created some uncertainty for investors, but despite this, global stock markets generally moved higher, and most major regions delivered positive returns.

While bond markets have experienced periods of volatility, higher yields continue to create attractive income opportunities for long-term investors and may enhance future return potential.

Equities

UK

• The UK economy entered the second half of 2026 in a broadly stable, though still challenging position.

• The UK stock market has however been a brighter story, with the FTSE 100 benefitting from attractive valuations and strong earnings from globally diversified companies.

• While economic growth remains modest, UK equities continue to attract interest from international investors due to attractive valuations, strong dividend yields and the global nature of many leading UK-listed companies.

• Politically, the position is less stable following Andy Burnham’s appointment as Prime Minister – whilst there is uncertainty around economic and fiscal credibility, the immediate reaction has been one of a shrug rather than a notable market reaction.

US

• The US economy continues to drive ahead, with the stock market again reaching all-time highs.

• Strong employment, healthy consumer spending, and continued investment in technology have helped support market performance.

• Although investors remain focused on AI companies, strong earnings were evident across a wider range of sectors including healthcare, financial services, and energy – for example, in the energy sector, profits for companies such as ExxonMobil, Shell and TotalEnergies have increased as the Iran conflict sent oil prices sharply higher.

• Inflation in the US has been higher because of the Middle East conflict, but the US has been more insulated from the global supply issues due to being self-sufficient in oil.

• The Federal Reserve installed a new Chair in May 2026, although interest rates have remained steady throughout the year.

• Overall, the US economy remains in good shape, and employment data and consumer spending support this.

• Whilst valuations in some sectors remain elevated, ongoing earnings growth and innovation continue to provide important support for market performance.

Europe

• European markets delivered positive returns, supported by improving investor sentiment, resilient consumer demand and attractive valuations relative to other developed markets. Performance was largely shaped by geopolitical developments in the Middle East and significant swings in oil prices.

• Sector performance was uneven – defence stocks underperformed despite the geopolitical backdrop, as investors focused on potential cost overruns and delivery constraints.

• However, luxury and consumer discretionary names, including LVMH, Hermès and Inditex, rallied as lower energy costs supported consumer sentiment.

• Equity gains were largely driven by improved sentiment and lower geopolitical risk than earnings upgrades – this contrasts with the US where AI-driven earnings momentum played a larger role.

• European shares continued to trade at lower valuations than US counterparts, making the region attractive to some investors.

Asia & Emerging Markets

• Japan was a standout performer among developed equity markets during the second quarter, returning above 20% in local currency terms. This is attributed to corporate reforms, improving profitability, and stronger shareholder returns continuing to attract investment.  AI and semiconductor-related companies were the strongest contributors, and Japan has also benefited from its status as a major energy importer, as falling oil prices have boosted corporate profitability and investor sentiment.

• The Chinese economy grew at a reasonable pace but unresolved issues around the property market continue to restrict consumer confidence and short-term growth prospects – falling house prices and a weak labour market continue to constrain spending, suggesting a meaningful recovery in domestic demand is still some way off, despite targeted policy support.

• Indian equities have underperformed as concerns over slowing economic growth and earnings downgrades, particularly in the IT and financial sectors, have weighed on sentiment. Significant foreign investor outflows have added further pressure, although strong domestic inflows have helped provide support.  India also remains sensitive to oil price movements due to its reliance on energy imports.

• Emerging markets performed well, with technology and semiconductor companies being the key drivers of returns, particularly in countries linked to global AI supply chains. For example, the South Korean economy was driven by semiconductor giants Samsung Electronics and SK Hynix.  The momentum created by technology stocks does however make the sector vulnerable if investors become fearful of a bubble.

Fixed Interest

• Bond markets have experienced a more challenging period than equity markets, with inflation concerns and changing expectations around future interest rates influencing bond prices.

• Central banks remain cautious around adjusting interest rates for inflation, which has created some short-term volatility.

• That said, higher yields have meant bonds have offered more attractive income opportunities for many years.

• Corporate bonds remain relatively resilient, supported by strong company profits and healthy balance sheets.

• High yield bonds have also performed relatively well, benefitting from low default rates and stable economic growth.

• After a challenging period, the medium-term outlook for government bonds is more positive if a permanent resolution to the Middle East conflict can be achieved.

Alternative Investments

• Infrastructure was one of the more resilient asset classes during the quarter, benefiting from defensive qualities amid economic uncertainty and geopolitical tensions.

• Infrastructure was amongst the strongest performing areas, benefitting from stable income streams, and long-term investment trends such as renewable energy, electricity networks, battery storage, and data centres. These assets continue to benefit from growing demand linked to electrification and AI development.

• Gold has retreated from recent highs, although precious metals remained relatively stable and continued to benefit from demand for safe-haven assets amid geopolitical and inflation-related risks.

• Industrial metals such as copper were supported by structural demand linked to electrification, infrastructure investment and artificial intelligence-related power requirements, despite concerns about slower global economic growth.

• Commercial property delivered modest returns as rental income remained stable and property values showed signs of improvement.

• Retail and office sectors performed better than expected, and industrial and logistical assets continued to benefit from structural demand.

Market Outlook

The outlook for the remainder of 2026 remains encouraging. While periods of market volatility are inevitable, the fundamental backdrop remains supportive, with economic growth continuing, unemployment generally low and corporate earnings proving resilient. Innovation, particularly within technology and artificial intelligence, continues to create opportunities across multiple sectors and regions.

Overall, history tells us successful investment is rarely around anticipating short term market movements, and maintaining a well-diversified portfolio focusing on long term objectives will often provide better outcomes.