Investment Update September 2026
- ABP Team
- Sep 1
- 5 min read
Updated: 6 days ago
Global equities nudged forward during August despite thin trading and geopolitical horseplay which seems ever-present and a niggly bond market worried about debt and inflation. Perhaps the biggest market stimulus came from Scott Bessent, Chief Secretary to the Treasury, who announced he would more than double buybacks of US Treasuries from the long end of the yield curve and refinance by using Treasury Bills, which are much shorter duration. This announcement injected life into the gold and the erstwhile moribund crypto currency markets. Let us explain in the update that follows.
Figure 1: U.S. federal debt has significantly outpaced both S&P 500 growth and wage growth since 1964. Daniel Lacalle @dlacalle_IA, X (formerly Twitter), August 31, 2026. https://x.com/dlacalle_IA/status/2094349518842020286/photo/1
American debt hit $40 trillion in August whilst the so-called K-shaped economy causes ongoing wealth gaps between those with real assets and those subsisting on low incomes. The unemployment rate edged to 4.1%, but largely on a contracting labour force rather than genuine hiring strength. This divide in America will be a major voting point come November’s midterm elections.
US equities delivered a strong month in August, with the S&P 500 rising approximately 2.6%. Investor sentiment was supported by robust corporate earnings, particularly from companies benefiting from artificial intelligence investment. Interest rates were left on hold, despite pressure to hike and the combination of resilient earnings growth, and a stable monetary backdrop helped push major US equity indices towards fresh record highs during the month. Conjecture remains ever-present over the forward path for inflation. Short-term oil and commodity prices are a stimulant, whilst longer-term technology and artificial intelligence are a suppressant.
Treasuries faced a challenging environment as bond yields moved higher across the curve, reflecting concerns over inflation which has remained higher than the 2% target for 60+ months in a row, elevated government borrowing requirements, and uncertainty surrounding future Federal Reserve policy. Federal Reserve Chair, Kevin Warsh caused yields to push higher with comments made at the Jackson Hole global central bankers summer retreat at month-end. The 10-year Treasury yield rose to around 4.7%, while the 30-year Treasury yield briefly reached its highest level since 2007 at over 5.3%, resulting in negative returns for longer duration government bonds during the month. Despite a Treasury buyback programme designed to improve market liquidity, investors remained focused on fiscal pressures and the prospect of interest rates remaining higher for longer.
US Treasury Secretary Scott Bessent announced an increase in Treasury bond buybacks after a sharp rise in long-term government bond yields. The move was intended to improve liquidity in parts of the Treasury market and provide some stability following a period of heavy selling that had pushed 30-year yields to their highest level since 2007. We view the announcement as another indication that financial repression and debt management tools may well become more common, reinforcing the case for real assets such as equities, precious metals and other inflation-sensitive investments.
European equities remained resilient, with the STOXX Europe 600 gaining 0.3% and recording its fifth consecutive monthly advance. Strong corporate earnings, particularly across technology and financials, continued to support sentiment and helped the index reach fresh record highs earlier in the month. However, the tone became more cautious towards month-end as renewed geopolitical tensions pushed oil prices higher, adding to inflation concerns and driving bond yields upwards. Overall, European equities continued to benefit from solid earnings momentum, although elevated valuations and the prospect of tighter monetary policy suggest a more challenging backdrop ahead.
UK equities were broadly also resilient in August, with the FTSE 100 supported by strong performance from energy, mining and other large internationally exposed companies. The index reached new record highs during the month, although gains were tempered towards month end as rising oil prices, geopolitical tensions and renewed concerns over inflation increased market volatility. The FTSE 250 was somewhat stronger towards the end of the month, helped by improving sentiment towards domestically focused companies.
UK Gilt yields remained elevated, reflecting concerns over inflation, government borrowing and the UK fiscal outlook, with the 10-year yield around 5.2% and close to its highest levels since 2008.
Chinese equities were volatile with the CSI 300 ending the month broadly flat after reaching its highest level of the year earlier in August. Investor sentiment was supported by improving manufacturing activity, strong performance from selected technology and energy companies, and expectations of further policy support. However, concerns over weak domestic demand, the property market and ongoing trade tensions continued to weigh on confidence. Towards month end, new measures affecting property financing added further pressure to the sector, highlighting the uneven nature of China’s economic recovery. Chinese equities are at their lowest ebb in 30-years versus US equities, as shown in the chart below.
Japanese equities were strong through much of the month, with the Nikkei 225 and TOPIX reaching fresh highs as investor sentiment benefited from solid corporate earnings, a weaker yen and continued enthusiasm for technology and semiconductor stocks. However, markets became more volatile towards month end as rising bond yields, expectations of further Bank of Japan rate hikes and renewed geopolitical tensions weighed on risk appetite.
Meanwhile in emerging markets US military strikes on Iranian rocket launchers over the final weekend of August sent oil prices sharply higher, compounding the Jackson Hole signal and creating a difficult backdrop for energy-importing emerging economies. The Korean stock market stabilised modestly. Broader emerging economies remained bifurcated: commodity exporters benefited from elevated oil and hard asset prices whilst energy importers faced continued margin pressure, with the prospect of further developed market rate hikes compounding headwinds to capital flows into month-end.
At portfolio level, we have been pleased to see something of a renaissance in the performance of the active managers held within our Core Plus portfolios, with performance year-to-date now ahead of their passive counterparts. This reflects a broadening of market leadership, which we see as a healthy signal for markets.
Once again, our strategy of keeping fixed income duration short has proven both profitable and sensible. A further review may see us moving shorter still, and we will keep you updated. Elsewhere, our equity exposure has benefited from a very strong earnings season across the board. Our commodity and precious metals allocation has also been positively reignited by the moves highlighted above in the US Treasury market.
The benefits are now increasingly evident of moving away from the traditional 60/40 equity and bond portfolio towards something closer to a 60/20/20 portfolio, where fixed income exposure is lower and shorter, while commodity and real asset exposure is introduced. We look forward to updating you further next month.
Written by the Alpha Beta Partners Investment Team.
All sources Bloomberg unless otherwise stated.
