August Update
Headlines & Highlights
- Warsh speech raises rate-hike expectations: Speaking at the Federal Reserve’s annual Jackson Hole Economic Symposiumin late August,Fed chair Kevin Warsh said the central bank will have “work to do” if inflation does not fall more quickly toward the Fed’s 2% target rate. Investors interpreted this to mean interest rate hikes may be coming soon: Based on futures market activity, investors believe there is a 50-50 likelihood that the Fed will increase short-term rates at its mid-September meeting. A week ago, before Warsh’s words in Wyoming, futures pegged the chances of a hike this month at 35%.
- Iran War flareup lifts crude oil prices: The United States and Iran began another round of tit-for-tat hostilities in the Persian Gulf region at the end of August, ending a month of calm in an intermittent conflict that started in late February. The U.S. said it initiated the latest military action as a response to Iranian attacks on commercial ships seeking to pass through the Strait of Hormuz. The exchange of missile fire pushed up oil prices – Brent crude, the international benchmark, climbed to its highest level since late July at more than $95 per barrel.
- Large caps enjoy their best August in years: Even with a dip at month-end because of Iran War-related worries, the S&P 500 index of large-cap stocks – propelled by stellar second-quarter earnings growth – turned in its best August performance since 2021. The iShares ETF representing the S&P 500 gained 2.7% for the month, bringing its year-to-date return to 13.1%. Small caps (0.9% in August/19.9% YTD) were strong in early August but faded later in the month amid expectations for higher interest rates. AI momentum lifted international shares, while U.S. REITs (-2.5%/11.1%) struggled as long-term Treasury yields rose in part due to worries about high levels of borrowing to finance the AI buildout.
Select Market Returns
Our Views
- Despite how it was interpreted by the market, Fed chair Warsh’s speech in Jackson Hole was purposely vague enough to leave the central bank leeway in determining whether or not it should raise short-term interest rates. Warsh has officially ended forward guidance on rates, but more clarity could come after the inflation numbers for August are released shortly before the Fed’s next meeting.
- Barring a sharp inflation upswing or an overly strong jobs report for August, we still believe the Fed will keep short-term rates in the current 3.5% to 3.75% range at least through the end of the year. One reason why is that the recent higher yields on longer-maturity Treasuries may help the Fed address inflation by pushing up borrowing costs for consumers and businesses.
- The latest Iran War flareup reiterates the near-term challenges in normalizing global oil supplies given the shipping chokepoint at the Strait of Hormuz. Oil will be subject to dramatic price swings until there is credible momentum toward peace – that volatility will continue to have a significant impact on inflation measures.
- Economic growth for the third quarter is currently projected at a 4.8% annualized rate, driven mostly by consumer spending and capital investment, according to the Federal Reserve Bank of Atlanta. That sizzling pace could be revised lower as more data is collected in the coming weeks, but we still see a favorable environment based on a resilient consumer and expanding AI development.
- U.S. stocks have benefited this year from exceptional year-over-year earnings growth, led by – but not limited to – the “Magnificent 7” group of tech giants leading the AI buildout. We believe both large caps and small caps have room to move higher in the remaining months of 2026 given productivity and margin improvements resulting from sales growth and AI adoption.
The material shown is for informational purposes only. Past performance is not indicative of future performance, and all investments are subject to the risk of loss. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties and actual results may differ materially from those anticipated in forward-looking statements. As a practical matter, no entity is able to accurately and consistently predict future market activities. Information herein incorporates Altair Advisers’ opinions as of the date of this publication, is subject to change without notice, and should not be considered as a solicitation to buy or sell any security. While efforts are made to ensure information contained herein is accurate, Altair Advisers cannot guarantee the accuracy of all such information presented. Material contained in this publication should not be construed as accounting, legal, or tax advice. See Altair Advisers’ Form ADV Part 2A and Form CRS at https://altairadvisers.com/disclosures/for additional information about Altair Advisers’ business practices and conflicts identified. All registered investment advisers are subject to the same fiduciary duty as Altair Advisers.
The material shown is for informational purposes only. Past performance is not indicative of future performance, and all investments are subject to the risk of loss. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties and actual results may differ materially from those anticipated in forward-looking statements. As a practical matter, no entity is able to accurately and consistently predict future market activities. Information herein incorporates Altair Advisers’ opinions as of the date of this publication, is subject to change without notice, and should not be considered as a solicitation to buy or sell any security. While efforts are made to ensure information contained herein is accurate, Altair Advisers cannot guarantee the accuracy of all such information presented. Material contained in this publication should not be construed as accounting, legal, or tax advice. See Altair Advisers’ Form ADV Part 2A and Form CRS at https://altairadvisers.com/disclosures/ for additional information about Altair Advisers’ business practices and conflicts identified. All registered investment advisers are subject to the same fiduciary duty as Altair Advisers.