Global Developed Shares: Unhedged global shares rose 0.5% in AUD terms in August, bringing 12-month returns to 10.0%, while hedged global shares rose 2.5% in August and returned 21.0% over the past 12 months.

 

Australian Shares: Australian shares rose 1.5% in August, bringing 12-month returns to 4.4%. The domestic market lagged the global rebound, held back by the major banks, which continued to de-rate as housing credit slows and bad debt expectations rise.

 

Property and Infrastructure: Hedged global listed property fell 3.1% in August, bringing 12-month returns to 9.6%. Hedged global listed infrastructure fell 2.0%, bringing 12-month returns to 12.2%. Australian listed property fell 6.7%, bringing 12-month returns to -15.5%.

 

Global Fixed Interest: Hedged global bonds returned 0.2% over August and 1.8% over the past 12 months.

 

Australian Fixed Interest: Australian bonds fell 0.2% over August and returned 0.6% for the past 12 months.

 

The Australian dollar rose 1.9% against the US dollar in August to US$0.72, supported by firmer commodity prices and the improvement in global risk appetite.

 

August 2026 saw global share markets recover strongly as investors bought back into the technology and AI-related names that had been sold down heavily in July. A second consecutive month of softer than expected US inflation, helped by lower fuel prices, underpinned the rally. June quarter earnings were the strongest in five years, with S&P 500 companies delivering year-on-year earnings growth in excess of 50%. Strong manufacturing and jobs numbers, along with broad growth in corporate profits, indicates that the US economic growth continues to be robust despite numerous headwinds.

 

It is worth recognising the remarkable results of the recently concluded US reporting season. Over 86% of S&P 500 companies beat earnings expectations, with strength broad-based across sectors, though tech and energy led. The overall quarterly EPS surprise was 24% in aggregate – a result not seen since the recovery from the Covid-induced recession. 

 

Earnings expectations are typically revised downwards through the year – however expectations for both 2026 and 2027 continue to inflect upward. When looking at the underlying components of earnings, estimates for the median stock have risen across top-line revenue growth, bottom-line earnings, as well as for free cash flow, highlighting the underlying strength of earnings growth.

 

Australian shares lagged the global rebound, while listed property was the weakest asset class of the month as long bond yields pushed higher. Recovery in emerging markets were concentrated in the same North Asian technology names that drove the July sell-off. Commodities were strong across the board, with gold the standout, and the Australian dollar firmed as the US dollar weakened.

 

In Australia, the release of credit and quarterly GDP figures showed that while the economy has been travelling okay, there are signs of slowing in areas such as housing. Weak productivity growth means the economy is operating close to its speed limit and presents the RBA with a dilemma in deciding whether to raise rates again. The upshot is that the market is now pricing roughly a 60% chance of a rate hike at the September meeting and a rate hike is fully priced in by November.

 

The US July CPI showed headline inflation easing to 3.4% and core inflation slipping to 2.5% from 2.6%, the second consecutive month of improvement, helped by lower petrol and fuel prices. The labour market proved more resilient than expected, with August payrolls up 162,000 against expectations of a 55,000 lift and upward revisions of 21,000 to previous months, while the unemployment rate held at 4.1% and wages growth slowed to 3.2%. The federal funds rate was unchanged at 3.50% to 3.75%, and markets expect rates to rise 25 to 50 basis points over the year ahead.

 

The risk of a correction in shares remains high. Strong gains year to date have left US and global shares vulnerable as we enter September which has on average been the weakest month of the year for US and Australian shares over the last 40 years. A correction in the US would likely drag Australian shares down. There are plenty of triggers for a correction including rising bond yields at a time when equity risk premiums over bonds are low, potential Fed and RBA rate hikes this month, rising oil prices, worries about an AI bubble and political uncertainty ahead of the US midterms. But with strong earnings growth we would see any pullback as a correction rather than the start of a new bear market.

 

The slump in home prices deepened in August and likely has further to go. So far down 3.6%, as more RBA rate hikes, tax hikes on investors and poor sentiment continue to impact prices.