August 2026 Monthly Market Review

September 3, 2026 · Ashi Guiles

U.S Overview

August was a strong recovery month for the market after two consecutive down months. The S&P 500 and the Nasdaq had their best August since 2021. Technology shares led the rebound, reversing much of July’s semiconductor selloff, and strong corporate earnings gave the market rally a foundation. Our portfolio families participated in the advance, with returns scaling to each portfolio’s equity weighting.

It is also worth noting how much of this year’s market leadership has come from energy, a sector that has gained more than 40% on the back of a U.S.-Iran conflict that has now run for six months. That exposure to energy cuts both ways depending on the portfolio.

The Federal Reserve did not meet in August, but Chair Kevin Warsh’s speech at the Jackson Hole symposium moved markets more than most meetings do. Warsh said inflation running above the 2% target should be the Fed’s main focus, described the labor market as stable and consistent with full employment, and characterized financial conditions as not broadly restrictive. That was a firmer stance than he took at his July press conference. Consumer prices rose 3.4% over the twelve months through July. Markets responded immediately to Warsh’s focus on inflation issues and inferred it to be an indication of a Fed interest rate hike in September, which would be the first interest rate hike since 2023.

International Overview

European markets extended their run in August. The STOXX 600 finished higher for its fifth consecutive monthly gain, and Germany’s DAX set a record close late in the month. Automakers and banks led the way, and energy shares gained alongside the move in oil. The European Central Bank held its deposit rate at 2.25% following June’s increase, with officials still watching whether higher energy costs continue to drive up consumer prices. Europe has been a steady contributor to the international allocations of both portfolio families this year, without the sharp swings seen in Asia.

Asian markets recovered through most of August before declining in the final week. Japan’s Nikkei 225 climbed once again, recovering the ground lost in July, and South Korea’s Kospi rallied as chipmakers Samsung Electronics and SK Hynix regained footing. The last week of the month was harder. Warsh’s hawkish remarks and the renewed U.S.-Iran exchange sent regional markets lower. Chinese and Hong Kong markets proved to be steadier than usual, but Asia remains the most volatile part of our international allocation, and August showed both sides of that within a few weeks.

Emerging markets improved in August alongside the recovery in Asian technology shares, though higher oil prices continued to weigh on energy-importing economies and rising expectations of a Fed rate increase kept pressure on currencies. Our Diversified portfolios hold emerging market exposure through their international equity allocation and benefited from the rebound.

What does this mean for you?

August returned every portfolio to positive territory. Our Diversified portfolios gained between 1.63% and 2.33% for the month, and all three finished ahead of their benchmarks. The Diversified Conservative Portfolio remains the standout for the year at 7.35% against a benchmark of 6.78%. Our Fossil Free portfolios gained between 1.37% and 1.81%, finishing within two basis points of their benchmarks, which is what we expect from their index-oriented construction. Our Stable Value Portfolio returned 0.38% for the month and 2.14% year-to-date, an annualized rate of 3.21%. That is the highest rate the portfolio has produced this year, and it reflects maturing certificates of deposit being reinvested at better terms as expectations for Fed policy have shifted. The purpose of the Stable Value Portfolio is to allow short-term or rainy-day funds to keep pace with inflation while staying liquid.

The bond portion of our portfolios had a steadier month than July, but the middle of August brought the sharpest test of the year. A global selloff in government debt pushed the 30-year Treasury yield to 5.32%, its highest level in nineteen years, while the 10-year held near 4.7%. For perspective, the 10-year traded below 4% before the Iran conflict began at the end of February. On August 19, the Treasury Department responded with a surprise announcement that it would at least double the size of its buyback operations in longer-dated bonds, and disclosed on the same day that outstanding public debt had passed $40 trillion for the first time. Long yields fell immediately on the news, with the 30-year dropping from 5.26% to 5.18%, and stocks snapped a three-day losing streak. Yields drifted back up over the following week. Rising yields reduce the value of bonds already held, which is a contributor to why the fixed income portion of our portfolios has been a drag on results for two months running.

Financial Headlines Worth Understanding: Treasury Buybacks

Some of you may have seen headlines about fear in the bond markets tied to actions from the U.S. Treasury, and a few have called to ask how this may affect your institution’s investments. Two significant pieces of news landed on August 19. The national debt crossed $40 trillion for the first time, about twice what it was ten years ago. The same day, the Treasury Department said it would double how many older government bonds it buys back from investors. The two are intrinsically connected. The government borrows by selling bonds, and lately it has had to promise higher interest to find buyers. Paying interest on what it already owes has cost $963 billion this fiscal year, close to 15 cents of every dollar the federal government spends.

It helps to be clear about what these buybacks do not do. They do not pay down the debt. They swap which bonds are outstanding, nothing more, and at about $4 billion at a time, they are small against $40 trillion. Interest rates dipped when the announcement came out and climbed back within a week.

The more consequential question is how the government pays for those buybacks, and the expectation is that it sells more short-term debt. Picture a mortgage. A household can borrow for thirty years at a fixed rate and know exactly what it owes each month, or take a shorter-term loan at a lower rate and refinance every few months. The second option usually costs less at the start, but the borrower must keep going back to the market and accept whatever rate is available. That homeowner is effectively betting interest rates will fall. Treasury Secretary Scott Bessent is making the same gamble with the nation’s finances, and right now it appears to be losing, with the Fed possibly raising rates in September.

If the bet fails, the government’s interest bill grows and consumes a larger share of the federal budget. That eventually shows up as some combination of higher taxes, reduced spending, or still more borrowing at higher rates.

For investments, a rate increase pulls in several directions at once. Bonds already held lose value, with the longest maturities losing the most, which is what has weighed on the Diversified and Fossil Free portfolios for two months. Stocks feel it too. Every stock is priced against what you can earn risk-free, so when a thirty-year Treasury pays 5.3%, companies whose value rests on profits expected far in the future have to work harder to justify their valuations. That is precisely the technology and AI group. July was a preview, with the Nasdaq-100 falling about 7% while the Dow rose. It also means stocks and bonds can fall together rather than offsetting each other. The sectors that hold up are those with cash flows now rather than later, including energy.

Beyond markets, mortgage rates track the ten-year Treasury, so housing gets harder. Corporate borrowing costs rise, business investment slows, and commercial real estate refinancing becomes difficult. That is how a rate problem becomes a growth problem. The Stable Value Portfolio is the exception in all of this and would continue to benefit, since its certificates of deposit are replaced at better rates as they mature. That balance is the reason we spread money across different types of holdings rather than concentrating it where recent returns look best.

Thank you for your continued trust and support. It is our privilege to serve as stewards of your financial assets.

Sincerely,

The Faith Foundation Team