The S&P 500 gained 2.7% in August 2026 and four indexes hit all-time highs, but only five of eleven sectors rose and the Fed’s speech at Jackson Hole put a rate hike back on the table.
MONTHLY MARKET UPDATE
- The S&P 500 gained 2.7% in August and set a new high, joined at record levels by the Dow, the Russell 2000, and the equal-weight S&P 500. However, only 5 of 11 sectors finished higher, led by Energy with a 7.0% gain, and followed by Technology (up 6.2%), Materials (up 6.0%), and Health Care (up 4.9%).
- Growth won the month, but Value is still the YTD winner. Large-cap growth gained 3.8% for the month, outpacing a 2.6% gain for large-cap value. Year to date, value has returned 23.8% and growth 4.1%.
- Bonds gained even as short-term yields rose. The US Bond Aggregate returned 0.4%, while the 2-year Treasury yield climbed to 4.34% and the 10-year rose to 4.75%. However, the 30-year did slightly ease to 5.24%.
- The Fed’s Jackson Hole speech reset the Fed policy conversation. Fed Chair Kevin Warsh flagged PCE inflation at 3.7% over 12 months and 4.1% annualized over six, and told the audience he was “committed to a discipline, not to a decision.”
- International and hard assets led. Emerging markets returned 3.4% (up 24.4% YTD) and developed markets gained 2.0% (up 14.2% YTD). Gold gained 9.4% as it rose to $4,494, silver rose 16.2%, and WTI crude added 2.0% to finish at over $86 a barrel.
Market Breadth is Shifting (again), This Time with Interest Rates
Four different indexes set all-time highs in August: the S&P 500, the Dow, the Russell 2000, and the equal-weight S&P 500. That list spans mega-cap technology, blue chips, small caps, and the average large company, which normally signals broad participation. However, dispersion under the surface continues to be volatile, with only five of eleven sectors finishing higher, down from seven in July (similar to this past Spring when eight of eleven sectors ended May in the red). Energy continues to benefit from volatility around oil, while Technology rebounded from the semiconductor selloff we wrote about last month, and Materials rose on the back of gold’s rebound. Everything that was tied to a lower rate outlook went the other way, with Utilities down almost 5% and Industrials and Real Estate both lower.
Style leadership flipped too. Growth beat value for the first time in months, though the slight outperformance barely dents the nearly 20 points of outperformance for value this year (the Russell 1000 Value is up 24% YTD vs. the Russell 1000 Growth’s 4%). Overall we view the strong performance of technology stocks as largely rebounding from July’s damage (which was significantly impacted by press headlines and one-off events), rather than the start of a new leadership regime. We continue to remain optimistic on technology, but will need to see participation broaden again before treating this rally as the start of another long-lived technology bull market.
A Fed Rate Hike is Back on the Table for 2026
Fed Chair Warsh used his Jackson Hole keynote to make a point markets had not fully priced. Inflation is too hot at 3.7% over the past year, especially given the acceleration to 4.1% (annualized) over the past six months. As such, the Fed’s next interest rate move is no longer a “guaranteed” cut, and is now at least as likely to be a hike as a cut. That said, Warsh remained purposely vague, saying only that he was “committed to a discipline, not to a decision.” The key takeaway here is that the Fed is following through on his stated policy of telling investors less, which leaves the future path of rates uncertain. For investors we suggest not extending duration or taking on excess rate risk, as the slight portfolio gains may be easily eroded by future rate volatility.
What Matters Now
Our theme this year has been that returns must be earned, and August illustrated it. The sectors that got paid had something concrete behind them, oil, gold, and chips actually shipping. The ones that lost ground were the ones that need cheaper money to work.
Two things follow from that:
- The first is that the rate conversation has changed shape. For most of 2026 investors argued about when cuts would arrive. That question is off the table for now, and portfolios built around a falling-rate assumption are positioned for a world the Fed just described very differently.
- The second is housekeeping. Value is up nearly 24% this year against 4% for growth, small caps have returned over 20%, and emerging markets over 24%. Anyone who set an allocation in January and left it alone is running a meaningfully different portfolio than the one they chose. Record highs are a good moment to check that, precisely because nothing feels urgent.
In addition, both Emerging Markets and Gold are moving higher based off a similar thesis: US inflation is sticky. The market is telling us that rates will remain volatile, and so investors should act accordingly. For our clients we recommend limiting duration exposure, focusing on short dated fixed income, and maintaining real asset hedges in portfolio for inflation (as we discussed recently about gold’s role as a portfolio diversifier).
If you’d like to discuss in more detail, we’re happy to walk through it.
Please see important disclosures here.
