Monthly Market Update – August 2026

August was a month in which markets and the incoming economic data pointed in different directions. Stocks advanced and technology resumed its leadership, while the labor and inflation reports released during the month described an economy that is still growing but hiring less and making little further progress toward the Federal Reserve’s 2% target. A late-month speech from the Fed chair then reset expectations for policy in a direction few investors had positioned for at the start of the summer. Below we review each of these developments.

Equity markets advanced, with technology back in front

U.S. stocks gained ground in August despite a number of competing pressures. The S&P 500 rose 2.7% for the month and the Nasdaq gained 4.2%, while the Dow Jones Industrial Average added 1.5% and recorded its fifth consecutive positive month. The S&P 500 reached an all-time high early in August, drifted lower over the balance of the month, and still finished ahead of its July close. Small caps lagged, with the Russell 2000 up 1%, though it remains the strongest of the major domestic benchmarks year to date at roughly 20%.

Sector results were mixed rather than uniformly positive. Financials, information technology, health care, materials, communication services and consumer discretionary all gained ground, while utilities, industrials, real estate and consumer staples declined. The pattern marks a shift from the first half of the year, when leadership had broadened toward smaller and more cyclical parts of the market. In August, investors returned to the largest technology and artificial intelligence (AI)-linked businesses, and the concentration of returns narrowed accordingly.

International markets were similarly positive. The developed markets-focused MSCI EAFE index was up 2% for the month while the Emerging Markets index was up 3.4%. Fixed income also finished in positive territory, with the Bloomberg US Aggregate Bond Index up 0.39% and high yield up 0.97%. The 10-year Treasury ended August at 4.75%, little changed on the month though roughly 59 basis points higher than where it began the year. Crude oil rose about 2% to close near $86 per barrel, and gold gained over 9% to end August around $4,437 per ounce.

The Fed turned more hawkish at Jackson Hole

The Federal Open Market Committee (FOMC) did not meet in August, leaving the federal funds target range at 3.50% to 3.75%. The more consequential development came at the annual Jackson Hole symposium on Aug. 28, where Chair Kevin Warsh delivered his first address in that role. Warsh said he was impressed by the economy’s overall performance but expressed concern that underlying inflation trends had not meaningfully improved, and he indicated rates could need to move higher if more progress is not made on prices.

Markets repriced quickly. Ahead of the speech, futures implied roughly a one-in-three chance of a September increase; immediately afterward that probability rose to about 56%, some 20 percentage points higher than the prior day. By Aug. 31, the implied odds had climbed to roughly 60%. Deutsche Bank maintained its expectation for 50 basis points of tightening this year, with increases at the September and December meetings, while others were more skeptical, noting that the July FOMC meeting produced no consensus to raise rates and that the data released since have shown both cooler inflation and softer hiring. The Committee next meets on Sept. 16.

Hiring stalled while inflation held above target

The employment report released Aug. 7 covered July and was weaker than expected. Nonfarm payrolls declined by 23,000 against consensus estimates in the 83,000 to 95,000 range, and revisions reduced May by 66,000 and June by 37,000, bringing the average monthly gain over the prior twelve months to roughly 34,000. The unemployment rate ticked down to 4.1%, but the improvement reflected people leaving the workforce: participation fell to 61.4%, its lowest in more than five years. Twelve-month wage growth slowed to 3.2%, the weakest pace since May 2021. ADP’s more current read showed private employers adding 38,000 jobs in August, the slowest month since January, with gains concentrated in education and health services while manufacturing shed 17,000 positions.

Inflation data released during August were more encouraging at the headline level. July CPI, published August 12, rose 0.1% for the month and 3.4% over the prior year, down from 3.5% in June, with core CPI at 2.5% annually. Shelter accounted for roughly two-thirds of the monthly increase, and energy prices fell 1.5% for the month even as they remained close to 15% higher than a year earlier.

The Fed’s preferred gauge told a less settled story. The July PCE price index, released Aug. 26, rose 3.7% from a year earlier, a tenth above consensus, with core PCE at 3.3%. That core reading has now held at 3.3% or 3.4% in each of the last four months, indicating progress on underlying inflation has largely stalled.

Broader activity held up. The second estimate of second-quarter GDP, also released August 26, held at a 1.5% annualized rate, down from 2.1% in the first quarter, though consumer spending within it was revised up to 3.4% and corporate profits increased $400.9 billion. Business surveys covering August stayed in expansion, with the ISM Manufacturing PMI at 54.6% and ISM Services at 55.4%. Households were less sanguine: the Conference Board’s Consumer Confidence Index slipped to 89.4 in August from 90.2, and the University of Michigan’s sentiment index fell to 51.7, about 6% below July, with year-ahead inflation expectations at 4.0%.

Putting the month in context

One policy development outside the data calendar is worth noting. Trade negotiations between the United States and Canada broke down in late August, and the administration began enforcing 50% tariffs on roughly $20 billion of Canadian goods on Aug. 22, with Canada announcing matching measures to take effect Sept. 8. National average gasoline prices stayed above $4 per gallon throughout the month.

Taken together, August described an economy that is still expanding, supported by consumer spending and corporate profitability, but one in which job creation has stopped and inflation has settled meaningfully above the Fed’s target. Equity markets looked past that combination and focused on earnings and the AI investment cycle. Bond markets did not, and the repricing that followed Jackson Hole left investors weighing the possibility of tighter policy for the first time in this cycle rather than easier policy.

Two releases in the coming days will do a good deal to clarify which reading is closer to right: the August employment report on Sept. 4 and the August Consumer Price Index on Sept. 11, both of which the FOMC will have in hand before it meets on Sept. 16. We will continue to monitor these developments and keep you informed.

Thank you for your continued trust.