Monthly Client Update | August 2026
Stocks Hold Steady Despite a Busy Month of Geopolitical and AI Headlines
- The S&P 500 Index was roughly flat, down -0.1%. Energy led the way (+12.6%) as rising geopolitical tension pushed oil prices higher. Financials followed (+6.2%), along with steadier sectors like Real Estate, Health Care, and Consumer Staples. Technology lagged (-3.4%) as AI stocks gave back some earlier gains.
- Bonds fell as interest rates rose. The broad U.S. bond market was down -1.3%, as rising oil prices tied to the U.S.-Iran conflict stirred up inflation worries again. Higher-quality corporate bonds fell -1.5%, while riskier high-yield bonds held up better, down just -0.3%.
- International stocks were mixed in July. Developed-market stocks rose +2.0%, outpacing the S&P 500, while emerging-market stocks fell -3.0% as the same tech selloff weighed on South Korean stocks.
Markets Turn Back to the Middle East as Tensions Resurface
This spring’s ceasefire didn’t hold (surprise!). Renewed conflict between the U.S. and Iran brought back familiar concerns, as uncertainty around the Strait of Hormuz again raised the risk of a disrupted oil supply. Late-month headlines pointed to de-escalation, but the the reality is anyone’s guess. This matters because rising energy prices feed inflation, and inflation drives Federal Reserve policy. The Fed held interest rates steady for a fifth straight meeting in July, though a few officials pushed for a rate hike given the renewed inflation risk.
This is a pattern markets have seen before this year: conflict rises, oil prices climb, tensions ease, then it repeats. The details change, but markets have absorbed this same shock more than once now. The Fed’s split decision reflects that same uncertainty — officials are debating their next move but choosing to wait for more information rather than react to headlines (wise call). Despite the noisy headlines, the impact on markets has been limited. The stock market rebounded from the March selloff, and the S&P 500 has returned nearly +10%.
AI Stocks Trade Lower as Investors Shift Focus from Growth to Discipline
Second-quarter earnings season kicked off in July, with major AI companies — Alphabet, Microsoft, Meta, Apple, and Amazon — all reporting. For the past two years, investors have focused mainly on how much these companies were spending on AI and how big the opportunity could become. This quarter, the conversation shifted toward a new question: is that spending actually paying off? Great question!
Investors pushed back on heavy spending this quarter. Companies whose AI investments are clearly driving growth, like Microsoft’s cloud business, were rewarded. Others, whose spending is outpacing profits, saw their stocks fall. In short, the market is no longer rewarding growth and big spending alone — it wants to see results (can you believe that??). This kind of discipline is a normal, healthy stage for any major technology buildout, and July was the moment it arrived for AI.
Semiconductor stocks and other AI-related names gave back some earlier gains as investors questioned whether current spending levels are sustainable. Still, the pullback was contained: the average S&P 500 stock hit a new all-time high late in the month, and seven of eleven sectors traded higher. A key gauge of credit risk (credit spreads) ticked up slightly but remains low by historical standards. Even after the pullback, semiconductor stocks are still up nearly +60% year-to-date. As for the companies doing the spending, they forecast even higher spending levels in the coming quarters.
Let’s Talk About What This Means for You
Oil spiked, the Fed shrugged, and AI stocks had an identity crisis. Normal month, honestly. If any of that has you side-eyeing your portfolio, let’s chat. Schedule time with our team below!
Important Disclosures
This commentary is provided for informational and educational purposes only and should not be considered personalized investment, tax, or legal advice. The views expressed are based on current market conditions and are subject to change without notice.
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