Market Commentary - August 2026

August 2026

Markets Navigate Shifting Leadership and Higher Interest Rates in July;
August off to a strong start

The third quarter began with continued momentum, but markets became more cautious as July progressed. Concerns surrounding the fragile U.S.–Iran ceasefire resurfaced, energy prices remained elevated, and interest rates moved higher.

Despite the volatility, the S&P 500 was essentially unchanged in July, declining just 0.1%. The Dow edged 0.3% higher, while the technology-heavy Nasdaq and small-cap Russell 2000 declined 3.2% and 3.1%, respectively. Mid-cap stocks also pulled back, with the S&P MidCap 400 falling 2.4%.

One of July’s most notable developments was the shift in market leadership. Value stocks gained 3.8%, significantly outperforming growth stocks, which declined 4.8%, as measured by the Russell 1000 Value and Growth indexes.

International markets were mixed. Developed international stocks gained 1.9%, as measured by the MSCI EAFE Index, while emerging markets declined 3.3%.

Economy, Inflation, and the Federal Reserve

Economic reports were mixed during July. June headline and core inflation readings were cooler than expected but remained above the Federal Reserve’s 2% target. The labor market showed signs of moderating, while second-quarter real economic growth (inflation adjusted GDP) slowed to 1.5% from 2.1% in the first quarter. Though consumer spending remained solid growing 3.2%.

The Federal Reserve left interest rates unchanged following its July 28–29 meeting. Policymakers continue to emphasize price stability, making the outlook for monetary policy an important source of market uncertainty. By month-end, financial markets were pricing in the possibility of at least one additional rate increase before year-end.

Corporate earnings remained a bright spot. Second-quarter U.S. earnings were on pace to grow approximately 36% from a year earlier, according to JPMorgan, with 86% of reporting companies exceeding expectations, according to FactSet. However, technology and communication services companies accounted for roughly 75% of that earnings growth.

Bonds and Interest Rates

Rising interest rates weighed on the bond market. The benchmark 10-year U.S. Treasury yield increased 0.31 percentage points during July, finishing the month at approximately 4.75%. The Bloomberg U.S. Aggregate Bond Index declined approximately 1.4%.

July QuickTakes

• The Dow led the major U.S. indexes, gaining 0.3%, while the S&P 500 was essentially unchanged at –0.1%.

• The Nasdaq and Russell 2000 declined more than 3%, while the S&P MidCap 400 fell 2.4%.

• Value stocks significantly outperformed growth stocks, gaining 3.8% compared with a 4.8% decline for growth.

• Inflation readings were cooler than expected, but economic growth and labor-market conditions moderated.

• Second-quarter corporate earnings were exceptionally strong, although growth remained concentrated in technology and communication services.

• Developed international stocks gained 1.9%, while emerging markets declined 3.3%.

• The Federal Reserve held policy rates unchanged at its July meeting.

• The 10-year Treasury yield rose to approximately 4.75%, weighing on bond returns.

August Update

August has brought additional cooler-than-expected inflation reports, along with moderating labor-market and economic data. These developments have reduced Federal Reserve rate increase expectations from two to one by year end but remain fluid.

Supported by strong corporate earnings, U.S. stocks surged to new all-time highs, though have pulled back modestly since. Bond yields have moderated around recent peaks, particularly at the longer end of the yield curve. However, energy prices remain elevated amid tenuous progress toward resolving the U.S.–Iran war, while concerns surrounding rising U.S. debt levels continue to influence financial markets.

The Outlook

We remain cautiously optimistic about the remainder of 2026 while recognizing that uncertainty remains elevated. Market volatility is a normal part of investing and can create opportunities for disciplined, long-term investors.

Diversification continues to matter. This year has provided another reminder that market leadership can change quickly. Maintaining exposure across asset classes, investment styles, market capitalizations, and global markets can help portfolios participate in changing opportunities while managing risk.

Key Takeaways for Investors

• Remain well diversified.

• Maintain discipline and patience.

• Keep your focus on long-term objectives.

• Consider year-end tax and financial-planning opportunities.

• Periodically review your risk tolerance and portfolio allocation.

Call your Nelson Advisor today at 800-345-7593 to discuss any concerns or review your portfolio.

—Your Nelson Securities Team

Past Performance is No Guarantee for Future Results

This article is for informational purposes only and does not constitute investment advice.