Bonds are back. So is the AI question.
Market Recap for the August 2026
Bonds Are Back
Starting with interest rates, a topic that has been getting a lot of attention in the financial news. Longer term interest rates have been rising for the whole year, and in August the 30 year hit a new high not seen since 2007. The one month chart is not alarming though, and the 30 year now sits slightly below the high point that was reached in mid August. The Fed also signaled at the end of the month that inflation is not slowing as much as they would like, and markets have shifted from expecting cuts to pricing in a real chance of an increase in September. The concern with higher long term rates is that they can be a headwind for growth. Mortgage rates are strongly impacted by the 10 year yield, so a higher 10 year will likely keep housing activity from picking up. The positive for investors is that bonds are offering rates not seen in over two decades. Longer term bonds also pay more than short term bonds again, which has not been the case for a few years. The implication for investors is that if you have a large cash pile, allocating some of it to bonds can help lock in better rates, provided you can handle the added duration — longer term bonds fall in price when rates rise, and this year that has been enough to wipe out the interest they pay.
“Longer term bonds pay more than short term bonds again, which has not been the case for a few years”
“Emerging markets have posted an astounding 23.14% return.”
International Stocks Are Quietly Crushing It
On a year to date basis, US stocks are doing great. The S&P 500 is up 13.13%. The tech heavy Nasdaq index is doing even better with a 16.66% gain. In addition, broader parts of the stock market are also doing well — small cap US stocks as measured by the S&P 600 are up 20.81%. International developed market stocks are a hair above the S&P 500 with a YTD return of 13.66%, and emerging markets have posted an astounding 23.14% (they were up as much as 30% earlier in the year, but have given a bit back). Measuring since January 1 of 2025, international stocks have significantly outperformed the US. There is no guarantee that will continue, but for those underweight international stocks (which most US investors typically are), it's worth being aware of the magnitude of the outperformance.
The $1.3 Trillion Question
It would be wrong to write a market newsletter and not say a word about the AI boom we are currently in. A big reason why both US stocks and emerging market stocks have done so well this year is the excitement around AI. Micron, for example, which provides memory chips for data centers, is up more than 200% YTD. According to Standard and Poor's, capital spending by the six largest tech companies building this infrastructure will exceed $1.3 trillion by 2027. AI bears are concerned that these investments are being made with no regard for future revenues or profits, and S&P's own report gives them something to point to: they expect all six of those companies to burn through more cash than they bring in for both 2026 and 2027, and to increasingly fund the spending with debt rather than cash on hand. If the bears are right, this will have to correct at some point, and there will be pain especially for those concentrated in the AI theme. However, there is the bull case that the products and services produced by AI will be so revolutionary that it's worth the investment. S&P themselves assume the spending starts paying off around 2028. Either way, the historical precedent is that getting too bullish or too bearish on one investment idea tends to be the wrong move. Instead, investors should know how much exposure they have to AI to ensure they are comfortable with the respective risk and reward of their portfolio
“Capital spending by the six largest tech companies building this infrastructure will exceed $1.3 trillion by 2027.”
The commentary in this blog is for informational purposes only and should not be taken as personalized investment advice
Sources: S&P Global Ratings, CME Group. AI Infrastructure Investment: S&P Global Ratings' "AI Infrastructure Investment To Exceed $1.3 Trillion By 2027" report (August 27, 2026); Fed Policy Expectations: CME Group CME FedWatch Tool. Data are as of September 1, 2026.
