Your August 2026 market update: stock market growth amid a global government bond sell-off

This is part of our monthly series. Catch up on last month’s summary here: Your July 2026 market update: tech stocks, Iran, and interest rates lead to flat performance across the world

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You might think that markets would’ve been on autopilot over the past couple of weeks. After all, even investors aren’t immune to the draw of a holiday.

But that’s not a trend you’d see just from looking at the stock market data.

Markets were as busy as ever, with a seeming recovery from the dips related to the Artificial Intelligence (AI) sector from last month.

That was even despite the war in Iran continuing, pushing up oil prices. Stocks seem to have largely shrugged off the threat that dwindling oil supplies could present.

Take a look at what happened to markets in August 2026.

The headlines: growth against a backdrop of uncertainty

The S&P 500 bounced in the final two days of July after a grim month. That performance continued as the index shot to new all-time highs in August. 

Strong corporate earnings, especially Nvidia’s, brought enthusiasm back into the market. That was despite the squeeze on oil prices as negotiations between the US and Iran to re-open the Strait of Hormuz fell through.

Plus, tensions between the US and Canada over tariffs threatened to escalate into a trade war. We might start to see the impacts of this in the coming months.

While the US performed well, it’s tricky to see that record high in this month’s chart. That’s because it’s dwarfed by big rises in Asia.

Asian stocks bounced, with Japan’s Nikkei 225 and China’s Shanghai Composite Index recovering from a sharp AI-related sell-off in July. 

Elsewhere, although it’s again tricky to tell from the chart, Europe also did well. August performance capped off a strong couple of months for European equities.

However, despite good results in the global stock markets, the bond market was less positive - more shortly.

August caps off a good run for European markets

As the dust settled on July’s big tech wobble and the AI stock sell-off, the data now suggests a perhaps unexpected winner: European equities.

While Europe has long been seen as the US’s poor relation, European markets have fared well so far in 2026. Especially when you widen the lens to the European Stoxx 600 - a collection of 600 large, medium, and small-cap companies across the continent, including the UK.

In 2026 so far, that index has risen 10%. That’s just shy of the S&P 500’s 13.5%. And, if we measure from the start of 2025, Europe’s actually ahead.

That’s in large part thanks to the type of companies that make up the market. Europe’s light on the tech stocks that lagged in the past couple of months amid the AI dip.

Meanwhile, it has more traditional companies - think banks, oil majors, and utility companies. There are also opportunities. Sectors like infrastructure, defence, and electrification all offer some growth potential.

Amid political uncertainty and the big tech wobble, Europe’s performance is noteworthy. 

Asian stocks end the month up after a rise and fall

It was also a strong month in Asia, especially in Japan and China.

Japan’s Nikkei 225 jumped after companies posted strong corporate earnings, bolstered by a weak yen. That was alongside better-than-expected exports in July after demand for semiconductors. 

In China, investors bought back into the AI trend after last month’s sell-off. Like in Japan, the market benefited from the news that July exports beat expectations.

Meanwhile, initial public offerings (IPOs) excited investors looking to get in on the ground floor of some expanding companies. 

For example, that included Unitree Robotics, a company building ‘embodied AI’ robots.

However, shares dragged in response to rising oil prices and inflation worries.

That still left indices up from the start of the month. The broader MSCI Asia ex-Japan also rose above its July figures, although the Nikkei 225 was yet to fully recover from the AI sell-off.

Investors respond well to bumper Nvidia earnings

The S&P 500’s latest all-time high came as Nvidia, one of the world’s biggest companies, announced strong earnings and revenue.

The rest of the Magnificent Seven - the leading tech companies driving growth in the US - brought a mixed bag of results last month. 

So, investors were very pleased to see Nvidia post stronger earnings and revenue in August. Shares rose 4% in the wake of the announcement.

However, part of the company’s revenue forecast comes from the news that it’ll need to increase server prices by 15% or possibly more.

That could be bad news for the other businesses that rely on Nvidia’s products - think Google, Microsoft, and Oracle.

Global borrowing costs worry investors

While stock markets performed well in August, the bond markets were less enthusiastic. 

Annual returns (known as yields) on US government bonds rose, with the 30-year Treasury trading above 5%, the highest since 2007. That’s a big signal that borrowing costs are high.

That led Scott Bessent, Secretary of the Treasury, to buy US bonds this month, to try and dampen yields. Bessent doubled buyback operations from around $2 billion to $4 billion.

This sounds big. But, it’s important to keep it in perspective. After the financial crash, the US’s central bank, the Federal Reserve (Fed), bought nearly $2.1 trillion of Treasury bonds and mortgage-backed securities between late 2008 and 2010.

Even so, it’s a clear signal that the US government’s concerned about increasing borrowing costs. 

The UK’s in a similar position, with the 30-year gilt yield at 5.87% - the highest since 1998.

European countries, including France and Germany, are also dealing with expensive debt.

Likewise, Japan’s benchmark 10-year bond yield hit a 30-year high on 17 August. That’s already been surpassed in September.

This all comes against the backdrop of potential interest rate rises in these economies, too.

Kevin Warsh, the Fed Chair, appeared to hint at that during the annual economic symposium in Jackson Hole.

As Warsh put it: “We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do.”

We may see other central banks, such as the Bank of England (BoE), European Central Bank (ECB), and Bank of Japan, face similar decisions.

Not only would this increase the cost of government borrowing, but it could do the same for businesses too. 

Higher borrowing costs can eat into corporate profits. That could especially be a problem for some AI companies, which have borrowed heavily to fund their plans.

We could see investors react to this in the stock markets over the coming weeks.

Risk warning

As always with investments, your capital is at risk. Past performance is not an indicator of future performance. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.