Investor update: August 2026

Financial markets in July – at a glance:

• Global equity markets were choppy in July. Investors balanced ongoing enthusiasm for the build-out of artificial intelligence (AI) with questions over how it’s being financed, while an undercurrent of broader geopolitical uncertainty remained.
• Bond markets were weaker and showed signs that investors believe inflation pressures may compel major central banks to raise interest rates.
• The UK saw a change in leadership, with Andy Burnham moving into 10 Downing Street as Prime Minister. Markets were unruffled by the widely anticipated transition.
• The investment team made no material changes to portfolio positioning over July, but are monitoring markets closely.

Global equities: noisy headlines, but still up year-to-date

Global equities struggled to find direction in July. Areas of the market closely tied to the AI theme saw particularly big one-day moves, both up and down, but greater resilience could be found elsewhere. Global equities remain higher for the year so far.

The US's tech-heavy NASDAQ index and the Korean KOSPI index both experienced higher volatility through the month. The UK’s FTSE 100, on the other hand, rose over the month, reflecting its lower exposure to technology.

Why volatility was focused on AI-related equities

Two key factors contributed to the sharper moves here:

1. A combination of concentration and momentum

In simple terms, a lot of money has chased a limited set of firms plugged into the build-out of AI in recent months. When positions become crowded in this way, they can become more vulnerable to shifts in mood. If investor confidence takes a knock, crowded trades can ‘unwind’ quickly, which means a lot of investors can sell at the same time. This can weigh on the equity prices of the companies in question, but also markets overall.

Over the course of July, so-called ‘fast money’ strategies, such as momentum-driven hedge funds, amplified these moves in equity markets. Strategies employed by some hedge funds can involve two-sided trades. On the ‘long side' of these trades, a fund may take a position in an asset that it expects to rise in value. On the 'short side’ of these trades, the fund may take a position anticipating a fall in the value of a different asset.

If both sides of these momentum trades move in the wrong direction for the fund (or several funds), they may need to move quickly to close the positions. This can add to market volatility.

2. How much tech companies are spending on AI, and where the money coming from

The second factor at play in July was AI capital expenditure (capex). Capex refers to company spending on projects that they expect to drive future growth. AI companies have been spending heavily to build systems and components that are needed for AI to work, but also on infrastructure such as power generation.

In July, some large tech firms reported robust earnings, but also lifted guidance on capex. In other words: they may be earning more money, but they’re also planning to spend more. More specifically, investors have been watching how the capex is being funded. So far, capex has been largely funded by company earnings, but the use of debt to fund capex has become more prominent in recent months. This has led to investor enthusiasm cooling a little in the short term.

This dynamic – how significant the debt component becomes in AI capex – is something the investment team are monitoring closely. That said, it is important not to lose track of the bigger picture. While some AI-linked equities were unsettled in July, both the NASDAQ and KOSPI indices remain up year-to-date.

Bonds: why yields rose (and why Japan is back in focus)

Bond markets were also slightly weaker over the month.

The ongoing conflict between the US and Iran continues to cause disruption in global oil supply. Hopes of a lasting ceasefire have meant oil prices have risen and fallen in recent weeks, but overall, markets expect energy prices to remain elevated and to feed into higher inflation. Speculation has mounted that central banks may need to raise interest rates in response. This generally causes bond yields to rise.

In Japan, bond yields rose more profoundly due to domestic developments. After decades of ultra-low yields, Japanese 10-year and 30-year government bond yields have moved back up to levels not seen since the mid-1990s. This is due to a mix of Bank of Japan policy normalisation – the Japanese central bank has been raising its policy rate – in addition to a more ‘pro-growth’ fiscal stance from the government, involving stimulus measures such as tax cuts and higher infrastructure spending.

Bank of England holds rates for now

In the UK, the Bank of England (BoE) held rates steady at 3.75% in July.

Policymakers at the BoE face a tricky balance. Services inflation – often treated as a proxy for wage pressures – has been easing, but the energy dynamics, mentioned above, remain a concern. The central question is whether higher energy costs will spill over into broader inflation (so-called 'second order effects').

Meanwhile, the market reaction to the new Prime Minister, Andy Burnham, was muted, with the outcome widely anticipated. From here, the new Prime Minister’s aim to restore stability will be measured in part by the bond market – and whether UK borrowing costs fall in line with, or at least closer to, those of the US and Europe.

Geopolitics and the rest of 2026

Looking to the latter half of 2026, the Middle East conflict looks likely to remain the main topic for investors.

The key shipping routes of the Strait of Hormuz and the Bab al-Mandab Strait – on the other side of the Arabian Peninsula – are critical to oil supply. With huge knock-on implications for inflation expectations, changes to the flow of oil in the region will create wide-reaching ripple effects for financial markets.

The other big thread is the AI capex story. The question of “who pays, and how” may prove crucial to the sustained support for leaders in this space.

What about portfolios?

The investment team has made no wholesale changes to portfolios recently, but is watching developments closely and will adjust when appropriate.

About this update: This update was recorded on 30 July 2026. All figures, unless otherwise stated, relate to July 2026. Data to the 30th of the month.

Source: MacroBond, J.P. Morgan Personal Investing and Bloomberg.

Risk warning

As with all investing, your capital is at risk. The value of your portfolio can go down or up and you may get back less than you invest. Past performance and forecasts are not reliable indicators of future performance. We do not provide investment advice in this article. Always do your own research.