Market commentary, August 2026

Written by Bevan Graham, Economist, Salt Funds Management (part of the Group behind the Summer KiwiSaver Scheme).

Global share markets regained momentum in August, supported by resilient economic activity and another strong corporate earnings season. However, markets continued to navigate a complicated backdrop, with geopolitical tensions, higher energy prices and uncertainty around the outlook for interest rates all remaining important influences.

Geopolitics remained firmly on investors' radar

Tensions between the US and Iran continued to keep oil prices elevated, while trade tensions between the US and Canada escalated after negotiations between the two countries broke down. The result was a full-blown trade war, and tit-for-tat tariffs.

While markets have become increasingly adept at looking through individual geopolitical events, these developments are another reminder that trade fragmentation, energy security and geopolitical uncertainty are becoming more permanent features of the investment environment.

The global economy continued to prove more resilient than many had expected. The US remained the standout, with business surveys indicating continued expansion and consumer spending holding up reasonably well. This resilience is good news for company profits, but it also complicates the outlook for interest rates.

China remained a notable weak spot, with domestic demand still subdued and further policy support likely to be required.

Inflation and interest rates

On inflation and monetary policy, central banks are maintaining a cautious stance. Inflation has fallen significantly from its earlier peaks, but underlying price pressures remain persistent and higher energy prices have added another layer of uncertainty.

In the US, Federal Reserve Chair Kevin Warsh used his Jackson Hole speech to reinforce the Fed's commitment to returning inflation to target, which markets interpreted as increasing the possibility of further interest rate increases. Similar pressures remain evident elsewhere, with markets expecting further tightening (i.e. interest rate rises) from a number of major central banks.

Closer to home, the Reserve Bank of Australia voted in August to keep its cash rate target on hold at 4.35%, in recognition of stubborn inflation over-hanging the Australian economy.

Asset class perspectives

In August, equity markets responded positively to the combination of resilient growth and strong company profits.

The US market performed particularly well, helped by another strong technology reporting season. Importantly, earnings growth also showed signs of broadening beyond the largest technology companies. While enthusiasm around artificial intelligence remains strong, investors are becoming more selective about which companies will ultimately generate attractive returns from the enormous investment currently being made in AI.

Bond markets, however, remained more challenging over the month. Government bond yields are elevated as investors grapple with persistent inflation, higher interest rates and increasingly large government borrowing requirements.

In the US, Treasury Secretary Scott Bessent attempted to ease pressure on longer-term yields by increasing purchases of longer-dated government bonds. The relief proved relatively short-lived, reinforcing the message that interventions in bond markets cannot ultimately substitute for credible action on the underlying fiscal position.

In summary

For diversified investors, August provided another reminder of the value of looking beyond short-term headlines. Broadly speaking, economic growth and corporate earnings remain supportive for shares, while higher bond yields have improved prospective returns from fixed income.

At the same time, geopolitical uncertainty, persistent inflation and concerns around government debt suggest the investment environment is likely to remain more volatile than the one that investors became accustomed to in the decade before the pandemic.

When faced with short-term turbulence the message is, as ever, to stay invested, to stay calm, and to maintain diversified holdings. Doing this, will more likely than not set you in good stead over the long term.

We will continue to update you on the key global themes and trends influencing investor decision-making. If you have any questions in the meantime, please don’t hesitate to get in touch.

About the author:

Bevan Graham is the Economist at Salt Investment Funds Limited. His career includes stints as the Chief Economist at AXA Global Investors, and later AMP Capital. Before that, he worked as Chief Adviser to the Leader of the Opposition. Bevan is based on Wellington and is a regular media commentator.