August 2026 Market Review: Tech Strikes Back as UK Lags and Bond Yields Drift Higher

August was, in many respects, a reversal of July. Where the previous month had punished technology and rewarded value, August saw investors pile back into the AI winners. Semiconductor shares, which had corrected sharply into late July, found their feet and rallied. The mega-cap technology names resumed their leadership, dragging the US and emerging markets higher, while the UK, gave back ground. Beneath the surface the same forces remained in play, with the ongoing US-Iran conflict keeping energy prices elevated and long dated bond yields under persistent upward pressure on fiscal and inflation worries.

Equities: Growth Reclaims the Lead

The defining feature of the month was the recovery in the AI and technology names that had sold off in July. Semiconductors, which had fallen around 25% from mid-June to late July, stabilised and rebounded, and software and hyperscaler shares resumed their advance. The result was a clean reversal of July's rotation, with growth reasserting leadership over value across the board.

US equities led the developed world. The S&P 500 rose 2.7% and the Nasdaq-100 gained 4.2%, their strongest August performance since 2021, with the Nasdaq snapping two consecutive months of losses. The market reached a fresh all-time high early in the month before easing back, but still finished comfortably above its July close. Strong second-quarter earnings provided the fundamental backdrop, with the vast majority of S&P 500 companies beating expectations.

The UK told the opposite story to July. The FTSE 100 slipped around 0.4% over the month, held back by the very characteristics that had helped it the month before. With growth back in favour, the index's low technology weighting and heavy tilt towards energy, banks and other value sectors became a relative drag rather than a support. Continental Europe was broadly flat, with the STOXX Europe 600 up around 0.2%, sitting once again between the UK and the US. 

Emerging markets recovered as the semiconductor complex healed. The technology-heavy Asian markets that had borne the brunt of July's sell-off were among August's stronger performers, with South Korea and Taiwan benefiting from renewed demand for AI memory. Japan was firmer too, with the Nikkei 225 gaining around 4% as technology names recovered. The clear message of the month was that appetite for the AI theme shaken in July, had returned.

Fixed Income: Yields Keep Climbing

Bonds remained under pressure. Long dated government bond yields ground higher across developed markets through August, driven by sticky inflation risk, elevated energy prices, heavy government borrowing and a growing wall of AI-linked corporate debt adding to supply. Yields did retreat late in the month after the US Treasury announced it would at least double its long-dated buyback operations, but the broader direction of travel stayed upward.

The pressure at the long end was as much about fiscal supply and inflation expectations as about the near-term policy rate. With the Middle East conflict keeping the inflation outlook uncertain, markets remained reluctant to price meaningful rate cuts, and the higher-for-longer narrative that had taken hold only firmed. Emerging market debt also outperformed, as the US dollar softened against some of the major emerging market currencies.

Japan’s government bonds were the poorest performers (in local currency terms). The 10-year Japanese Government Bond yield rose to a multi-decade high of almost 3% as a result of a looser fiscal backdrop and inflation rising again.

Oil Stays Elevated and Choppy

Oil remained the key macro swing factor. Having spiked to around $100 a barrel in July, Brent spent August trading in a choppy but elevated range, broadly in the high $80s to mid $90s, as hopes for a deal to bring stability to the Strait of Hormuz repeatedly rose and faded. Renewed attacks on shipping and continued US-Iran skirmishes kept a firm floor under prices, with the US Energy Information Administration cautioning that Middle Eastern production was unlikely to return to near pre-conflict levels until early 2027.

The persistence of elevated energy prices matters well beyond the oil market. It remains the single biggest threat to the inflation outlook just as underlying disinflation had appeared to be taking hold, and it was a central reason bond yields kept rising through the month. The situation stayed fluid into September, with the path of prices from here still hinging on whether tensions around Hormuz escalate again or finally ease.

UK Economy

Away from the market noise, the UK economy continued to grow in the second quarter, albeit modestly. The most recent figures, published mid-month, showed growth of 0.4%, down from 0.6% in the first quarter but positive nonetheless, leaving the economy 1.2% larger than a year earlier. Services once again did the heavy lifting, while industrial output was broadly flat. There was a lighter note in the detail too, with the ONS suggesting that June's better-than-expected reading owed something to World Cup spending and the warm weather. It is a reminder that even an economy under pressure from elevated energy prices, geopolitics and a cautious Bank of England can still find pockets of momentum.

The Portfolios

For the Smart Portfolios, August was a more constructive month than July, with the recovery in growth and technology assets working in the portfolios' favour. The rebound in semiconductors and the broader AI complex lifted US and emerging market equity exposure. Whilst gold also provided strong gains throughout the month. Gilts and European investment grade credit were some of the more lacklustre performers throughout August for our portfolios.  

The Smart Portfolios provide professionally managed, risk-profiled discretionary managed portfolios using BlackRock's iShares ETFs across five options from Conservative to Aggressive, matching different time horizons and risk tolerances. Automatic rebalancing maintains target allocations, whilst costs significantly below traditional active funds compound meaningfully over time. The portfolios are available in ISA and SIPP structures for tax efficiency.