Market Review & Investment Outlook

For three weeks in August, it looked like markets had figured it out. Strong corporate earnings drove equities to record highs across multiple regions, investors were cautiously optimistic and the inflation data, while not perfect, was moving in the right direction. Then Kevin Warsh walked up to the podium in Jackson Hole and the mood changed.

His tone was unambiguous: the Federal Reserve is not done. That single speech was enough to reverse much of August's mid-month euphoria, as markets rapidly repriced the likelihood of further rate increases before year-end. Add to that a US federal debt load that crossed US$40 trillion for the first time, a breakdown in trade talks with Canada and renewed geopolitical tensions pushing energy prices higher and the final stretch of August felt vastly different from the first.

What concerned us most, however, was not any single data point but the growing divergence between headline optimism and underlying reality. Earnings were good, but inflation remains sticky, fiscal pressures are building and the path to rate cuts is narrowing. Investors who entered August expecting relief left it facing renewed uncertainty.

Locally, the picture was more encouraging, though for specific reasons. South Africa's resources sector produced extraordinary returns in August, driven by surging gold and PGM prices and a significant corporate event in Northam. It was a reminder of the value of commodity exposure in portfolios and why diversification across sectors matters in both directions.

International Markets

USA

US equity markets delivered strong gains during August, until they didn't. The Nasdaq led with a 3.6% gain for the month; the S&P 500 rose 2.5% and the Dow added 1.4%. But the journey mattered as much as the destination: markets hit record highs in mid-month before giving back a meaningful portion of those gains in the final week.

The economic data told a familiar story of gradual progress interrupted by stubborn reality. Headline inflation for July eased to 3.4% year-on-year from 3.5%, a modest improvement. Core inflation (excluding food and energy) fell more meaningfully, from 2.9% to 2.5%. Encouraging so far.

The complication came from core Personal Consumption Expenditures, the Fed's preferred measure, which came in at 3.3% year-on-year, unchanged from June. That number matters because it signifies that underlying price pressures have not shifted. And then came Jackson Hole.

Warsh's message was clear: rates may need to go higher before they come down. Markets had not expected this. The resulting repricing of rate expectations for 2026 was sharp, and it arrived at the same moment investors were already processing a US debt burden that has now crossed US$40 trillion and a collapse in trade negotiations with Canada. September's policy meeting suddenly felt much less predictable.

Europe

European markets exhibited a split personality in August. Germany's DAX closed at a new all-time high, gaining 2.5% for the month. France's CAC 40 fell 2.1%. Both experienced the same mid-month record highs; what differed was how each absorbed the subsequent macro headwinds.

Eurozone inflation rose to 2.9% in July from 2.6%, driven by energy prices that were up 10.3% on an annual basis. That is the kind of number that makes central bankers uncomfortable, and the ECB is already in a difficult position. Having raised its deposit risk by 25 basis points in June, it now faces an uncomfortable trade-off: tightening further and risking choking a recovery that is only just gaining momentum or holding and risk inflation re-accelerating.

There was, however, genuinely good news too. Eurozone GDP expanded by 0.4% in the second quarter, twice the pace economists had expected. Such resilience should not be dismissed, yet also gives the ECB less cover to ease, which is precisely the dilemma policymakers are navigating as they head into autumn.

UK

The UK market ended August marginally in the red, with the FTSE 100 down 0.4%. It was not a weak month in aggregate, however, as mid-month saw strong asset rotation from US technology stocks into more traditional UK sectors, and the index briefly approached record territory before pulling back.

The UKs economic picture was mixed, however. The S&P Global composite PMI rose to 52.5 from 52.2, suggesting the economy continues to expand. But UK inflation for July accelerated to 2.9% year-on-year from 2.6% in June, driven by energy costs that complicates the Bank of England's already delicate policy calculus.

The more significant test may still be ahead. Chancellor John Healey's October budget is shaping up to be a defining moment: strained public finances, cost-of-living commitments and a tax base under pressure are a difficult combination. Markets are watching closely and any sign that fiscal credibility is being stretched could weigh on gilts and sterling into the year-end.

China

China's August story is increasingly one of two economies moving in opposite directions. Exports remain strong, particularly in semiconductors, electric vehicles and AI-related components. Domestic demand, by contrast, continues to disappoint and the property sector shows no sign of meaningful stabilisation.

The Hang Seng declined 1.4%, while the Shanghai Composite gained 4.0%, a divergence that reflects investor uncertainty about where China's growth is coming from. The manufacturing PMI improved marginally to 49.8 from 49.2 but remained below the 50-point expansion threshold. Industrial production grew 4.5%; retail sales rose just 0.6% and real estate investment contracted 19.2%.

What concerns us most in China is the structural picture beneath the headline numbers. Approximately 53 million workers are now relying on lower-paying gig employment, a number that has implications for consumer confidence and spending power that will take years, not months, to work through. Policymakers are trying to stimulate demand without abandoning export competitiveness. It is a difficult balance, and one that has yet to be found.

Japan

Japan had a good August on the surface. The Nikkei 225 closed 3.0% higher, continuing its recovery from the sharp July decline. The underlying picture is more complicated than the index suggests, however.

A weaker yen is helping exporters, but it is simultaneously pushing up import costs, particularly food and contributing to inflationary pressure that the Bank of Japan cannot easily ignore. Headline inflation rose to 1.9% from 1.7%, driven by energy prices. Fiscal pressures are mounting, security-related spending demands are growing, and markets remain acutely sensitive to any further policy normalisation. Japan's recovery is real, but it is being tested from multiple directions.

South Africa

August was an exceptional month for South African resource investors and a difficult one for almost everyone else. The FTSE/JSE All Share Index advanced 4.3%, but that headline number conceals a deeply divided market.

The standout story was Northam. The impending corporate action around Northam Platinum served as a catalyst for the broader PGMs complex, and combined with a surging gold price, propelled the Resources sector to an extraordinary 25.4% gain for the month. AngloGold Ashanti led the pack at +43.9%, followed by Pan African Resources (+42.5%), Gold Fields (+37.7%), Sibanye-Stillwater (+32.9%), Thungela Resources (+29.6%), Impala Platinum (+25.2%) and Northam Platinum (+23.4%).

The rest of the market told a quite different story. Industrials fell 5.8%, Property dropped 3.9%, and Financials declined 1.7%. Among the notable underperformers: SPAR Group (−20.4%) continued its difficult year following another leadership departure, this time its non-executive chairman and deputy chair, after the CEO had already departed earlier in 2026. AECI fell 18.4%, Truworths 13.9%, British American Tobacco 11.1%, Clicks 10.0%, and Foschini 9.8%.

There was positive news on the economic front, however: headline CPI slowed to 4.3% year-on-year in July from 5.0% in June. By contrast, core inflation remained sticky at 4.2%. The unofficial unemployment rate rose again to 33.6% in the second quarter from 32.7% previously. Though the commodity story in August was exciting, the broader economic backdrop remains challenging.

Key Investment Risks — What We're Watching Most Closely

Not all risks are equal. We rank the five most significant concerns heading into the final quarter of 2026 as follows:

1. Monetary Policy Tightening Risk – Fed Chair Warsh's Jackson Hole warning is the risk that concerns us most. Markets had largely priced out further rate hikes. That assumption has been challenged, and the mis-repricing across equities, bonds and credit could be significant. Growth of stocks and leveraged businesses are most exposed.
2. US Fiscal Sustainability Risk – US$40 trillion in federal debt is not just a headline it is a constraint on future policy flexibility. Combined with the breakdown in trade negotiations with Canada and ongoing tariff uncertainty, the fiscal outlook introduces a risk that markets may be underpricing. Bond markets will be the first to signal if confidence erodes.
3. Persistent Inflation Risk – Energy prices are rising again, core PCE is not falling and central banks across most major economies are navigating the same uncomfortable reality: inflation is not beaten. The path to rate cuts is narrower than it looked six months ago and we think it will stay that way through at least the first half of 2027.
4. China Growth and Property Risk – China's domestic economy is not recovering at the pace hoped for. The property sector contraction is structural, not cyclical, and the labour market shift towards lower-paying gig work has long-term implications for consumer demand. Stimulus measures have thus far failed to change the trajectory meaningfully.
5. Geopolitical and Energy Market Risk – Renewed tensions continued to drive oil prices higher during August. Any further escalation, particularly in energy-producing regions, could deliver another inflationary shock at a moment when central banks are already challenged between growth and price stability.

Technology valuations remain stretched after mid-month highs. Consumer-facing businesses remain vulnerable to persistent inflation. Property companies face headwinds from elevated rates. Conversely, commodity producers, as August vividly demonstrated, can deliver in environments of geopolitical uncertainty and supply constraint.

Investment Outlook

We enter the final third of 2026 with a clear-eyed view that corporate earnings are broadly good, monetary policy is tightening again, inflation is proving stickier than hoped and fiscal constraints are becoming harder to ignore. This is not the straightforward easing cycle that many investors were positioning for at the start of the year.

Our central view is that rates stay higher for longer than the market expects. This tends to favour cash-generative, financially resilient businesses over high-multiple growth stories. It argues for maintaining genuine diversification, not just across geographies, but across sectors and asset classes. And it argues for patience.

August's South African performance is instructive in this regard. The resource sector's exceptional returns came from a specific catalyst, the Northam corporate action, layered on top of a genuine macro tailwind in gold and PGMs. Not every month will deliver this, but the underlying case for commodity exposure in an inflationary, geopolitically uncertain world remains intact.

Despite the aforementioned challenges in global markets, quality businesses are generating strong earnings and economic growth, while moderating, has proved more resilient than many feared. And history is clear: volatility creates opportunity for investors who are prepared rather than reactive.

The months ahead will test that discipline.

“Successful investing is not about predicting the future; it is about preparing for it.”

As always, maintaining discipline, remaining patient and focusing on long-term objectives rather than short-term market noise remains the key to successful wealth creation.