The return of volatility
Investment Update - August 2026
July ended in a volatile market environment. While the global index fell by just -0,36%*, this performance masks significant divergences across regions, sectors and investment styles.
After several months of outperformance, US and emerging markets lost momentum, declining by 0,82% and 3,90% respectively. Their already high weighting in portfolios encouraged a rotation towards European markets, which gained 1% over the month. This trend was also reflected in style factors: Value rose by 2,71%, while Growth fell by 3,33%.
This geographical and factor rotation came as investors increasingly questioned the ability to monetise investments in artificial intelligence. In particular, concerns arose over the substantial spending by hyperscalers and its impact on cash flows.
Markets were also affected by renewed tensions in the Middle East. Renewed hostilities involving Iran sent oil prices almost 40% higher from the start of the month, pushing them above USD 100 per barrel. However, a decline of around USD 15 towards the end of the period helped ease inflation concerns.
In bond markets, sovereign yields generally increased, particularly at the long end of the curve. The US 10-year yield rose from 4,45% to 4,73%, while its German counterpart increased from 2,85% to 3,20%. In July, both the European Central Bank and the US Federal Reserve kept their key interest rates unchanged. Their communications nevertheless suggested that limited rate increases could be possible over the coming months.
Indeed, inflation remaining well above the 2% target, combined with resilient economic activity, gives central banks some leeway to maintain a restrictive stance.
In Europe, the economy proved more resilient to the energy shock than expected. Quarterly growth came in at 0,4%, compared with the 0,2% forecast. First-quarter growth was also revised from -0,2% to 0%, supported in particular by robust private spending. In the United States, annualised growth of 1,5% fell short of the 2% expected. Domestic demand nevertheless remains robust, both in terms of consumption and investment.
Against this solid macroeconomic backdrop, despite the risks that remain, portfolio positioning continues to favour risk assets.
Equities remain overweight relative to bonds. Sector allocation retains a cyclical bias. Industrials are benefiting from the artificial intelligence investment cycle, while the recent move back to a neutral position in technology helped portfolios navigate the volatility seen in July more effectively. European and US banks also remain favoured in order to benefit from resilient economic activity and high interest rates. Positions in biotechnology and small- and mid-cap stocks are also being maintained.
From a geographical perspective, positioning has been broadly neutral since early July, both for US equity exposure and European stocks, following a return during the period of volatility.
Finally, within the bond allocation, there remains a clear preference for credit, which is considered more attractive than sovereign bonds and exposure to duration risk.
*Performances are calculated in euros.
Stock markets
July provided a clear illustration of the shift in the market regime, with a defensive pullback primarily marked by the significant weakening of the Momentum factor. Despite the relative stability of developed-market equity indices, sector and factor moves were particularly pronounced. In this environment, the MSCI World fell by 0,36%, while the European index held up relatively better at +1% and the MSCI North America fell by 0,82%. China was the sole exception, gaining more than 8%, driven by a re-rating of technology companies, albeit from relatively low positioning levels.
The sharp increase in volatility resulted from the unwinding of positions linked to the artificial intelligence theme, following a prolonged period of outperformance in the semiconductor sector and among AI infrastructure providers. The decline also spread to industrial stocks, which alone detracted 2 percentage points from the global index. Unsurprisingly, the energy sector performed considerably better amid renewed hostilities between the United States and Iran. Financials gained 5,44%, supported by particularly favourable earnings momentum in the sector.
Although share-price performance during the earnings season was relatively mixed, the results provided reassuring fundamental signals, allowing stocks such as Microsoft and Amazon to recoup losses accumulated since the beginning of the period. Overall, the earnings season was once again strong, reflecting the continued improvement in earnings momentum across the indices.
No significant changes were made to the allocation. Tactical adjustments, including selective profit-taking in the technology sector, were made ahead of the earnings season, enabling portfolios to weather the correction better. July therefore marks the beginning of a more challenging phase, with investors paying particularly close attention to corporate capital expenditure discipline against a backdrop of geopolitical developments that are significantly reducing visibility.
*Performances are calculated in euros
Sovereign yields and credit market
In July, bond markets were once again dominated by developments in the Middle East conflict and their impact on energy prices. After a relatively favourable start to the month, characterised by lower oil prices and more cautious central-bank rhetoric, renewed hostilities revived concerns about a lasting inflationary shock, pushing up inflation expectations and sovereign yields.
In the United States, yields were driven primarily by fluctuations in oil prices and monetary policy expectations. At the beginning of the month, weaker-than-expected employment data and comments by Fed Chair Kevin Warsh in Sintra had reduced the likelihood of a rate increase in July, before the rebound in oil prices and inflation expectations revived this scenario. At its meeting at the end of July, the Fed ultimately left rates unchanged at 3,50–3,75%. The absence of clear guidance on the future trajectory led to a steepening of the yield curve, with longer-term yields rising while expectations of an immediate rate increase receded. The US 10-year yield ended July at 4,73%, up by around 27 bp over the month.
In the eurozone, yields were even more sensitive to fluctuations in energy prices. At the beginning of the month, slowing inflation and the absence of second-round effects had prompted investors to scale back expectations of further rate increases. The subsequent rise in oil and gas prices triggered a marked reversal, with markets once again pricing in several ECB rate increases. At its meeting on 23 July, the central bank kept its deposit rate unchanged at 2,25%, while indicating that further increases remained likely. Against this backdrop, the 10-year Bund yield reached 3,20%, its highest level since 2011, representing an increase of around 35 bp.
In the credit segment, European markets held up better than their US counterparts. In the eurozone, Investment Grade spreads tightened by 1 bp to 77 bp, while High Yield (HY) spreads tightened by 5 bp to 265 bp, supported by the slowdown in primary issuance as the summer approached. In the United States, the substantial wave of bond issuance linked to artificial intelligence and hyperscalers weighed on Investment Grade, with spreads widening by 3 bp to 79 bp. High Yield was also affected by rising rates and inflation concerns, with spreads widening by 10 bp to 285 bp. This underperformance was particularly concentrated in technology and telecommunications. Within US Investment Grade, spreads in both sectors widened by 11 bp, with monthly total returns of -2,4% for technology and -2,7% for telecommunications. In HY, technology spreads widened by 48 bp and telecommunications spreads by 47 bp, with the latter posting a total return of -2,4%.
Disclaimer
The recommendations contained in this document are, unless otherwise expressly stated, those of Spuerkeess Asset Management and are produced by Carlo Stronck, Managing Director & Conducting Officer, Aykut Efe, Economist & Strategist, Guillaume Gehant, Portfolio Manager and Martin Gallienne, Portfolio Manager, acting under an employment contract with Spuerkeess Asset Management.
Spuerkeess Asset Management is an entity supervised by the CSSF (Luxembourg’s financial sector supervisory authority) as a UCITS management company able to provide discretionary portfolio management and investment advisory services.
All external sources (financial information systems, Bloomberg and Refinitiv Datastream) are, unless expressly stated in the recommendation itself, deemed reliable, it being understood that Spuerkeess Asset Management cannot, however, fully guarantee the accuracy, completeness or relevance of the information used by these sources. The information may be either incomplete or condensed and cannot be used as the sole basis for valuing securities.
The valuation of financial instruments and issuers contained in this document is based on data provided by Bloomberg. The full description of the valuation method used by Bloomberg is available at www.bloomberg.com.
Any reference to past performances should not be construed as an indication of future performances. The price or value of the investments to which this document refers directly or indirectly may vary at any time against your interests. Any investment in financial instruments entails certain risks of which Spuerkeess (Banque et Caisse d’Épargne de l’État, Luxembourg) has been informed beforehand, such as the loss of the investment made.
With a view to providing these recommendations to Spuerkeess, Spuerkeess Asset Management has verified all relationships and circumstances that could reasonably be likely to undermine the objectivity of the recommendations contained in this document and confirms the absence of interests and conflicts of interest relating to any financial instrument or issuer to which the recommendations relate directly or indirectly, as well as those of the persons involved in producing these recommendations.
Recommendations are made on the date indicated on the first page of the document and were first released on the same date. The recommendations contained in this document may, where applicable, be used and therefore updated when Spuerkeess Asset Management next provides investment advice to Spuerkeess.
All recommendations sent by Spuerkeess Asset Management to Spuerkeess over the past twelve months may be consulted directly and free of charge at Spuerkeess Asset Management’s registered office, 19-21 rue Goethe, L-1637 Luxembourg. The information to be consulted shall include the date of dissemination of the recommendation concerned, the identity of the individual(s) involved in the production of the recommendation, the target price and the relevant market price at the time of dissemination, the direction of the recommendation concerned and the period of validity of the target price or recommendation.
The information contained in this document cannot be used as the sole basis for valuing securities and this document does not constitute an issue prospectus.
This document is for information purposes only and does not constitute an offer or solicitation to buy, sell or subscribe. Spuerkeess Asset Management may not be held liable for any consequences that may result from the use of any of the opinions or information contained in this document. The same is true for any omissions.
Spuerkeess Asset Management does not accept any liability for this document if it has been altered, distorted or falsified, particularly through online use.