Arta Market Brief - August 2026: The easy part of this rally may be over

Written by Brandon Ho, CFA, Head of Investment Advisory SG

Commentary as of 5 August 2026

For much of this year, AI driven earnings did the heavy lifting for markets, while rate worries sat in the background. Now though, that balance may be shifting. The US 10-year real yield is climbing towards its highest level since 2008¹, and Fed Chair Kevin Warsh's reluctance to offer clear guidance is feeding some of that move. Even within the same earnings season, some of the market's biggest AI spenders rallied while others fell sharply, a sign the market has grown more selective about which stories it will reward. Looking forward, rising yields could matter to markets just as much as what companies report.

1. Macro Backdrop

Federal Reserve Chair Kevin Warsh held his second policy meeting since taking the helm, and the message echoed his first: rates on hold, tone unsoftened. Core inflation, the Fed's preferred gauge, ran at 3.3% year on year in June, above the 2% target, and Warsh has called that level unacceptable².

Markets are also digesting a related move beneath the surface. The US 10 year real, or inflation adjusted, yield has climbed toward 2.5% since mid May, up from below 2%¹. A further rise past that level, last seen in 2023, would mark the highest real yields since 2008, a threshold we think could weigh on equity valuations, particularly for growth heavy sectors like technology. Warsh's limited forward guidance leaves each data release carrying more weight than usual in shaping where yields go next.

2. Market Developments

July turned out to be a month where the market's usual script of AI earnings driving everything got a bit more complicated. US equities indeed stayed resilient overall, with the S&P 500 up over 10% year to date³, but a look beneath the index masks a fair amount of turbulence.

Second quarter earnings season delivered a split verdict on AI related spending among the largest technology companies. Roughly six in ten S&P 500 companies had reported results by month end, with about 86% beating earnings estimates⁴, the highest share since 2021. Some of that headline strength reflects one off items though. Excluding a couple of outsized gains, average earnings growth would sit meaningfully lower, a much more grounded picture than the top line figure suggests. Broadly, companies whose AI investment is already generating visible cloud revenue and cash flow were rewarded this earnings season, while those still asking the market to wait were not.

Semiconductor names had an especially rough month, and the pressure was not confined to the US. A broad selloff erased more than a trillion dollars in combined market value across US chipmakers⁵. The turbulence spread well beyond American shores too. South Korea's KOSPI index posted its steepest monthly decline since the 2008 financial crisis⁶, a combination of profit taking after an unusually strong run, concerns that Chinese competitors are closing the technology gap in memory chips, and a sharp unwind of leveraged retail positioning that had built up over the preceding months. Even after that decline, Korea's market remains among the stronger performers globally for the year as a whole.

In fixed income, Treasury yields stayed near multi-year highs through July¹, with the Fed's limited guidance adding a layer of uncertainty for investors positioning around duration. Gold traded in a wide range around $4,000 an ounce⁷, and oil briefly traded above $90 a barrel on renewed Middle East tensions before easing back⁸.

3. Asset Class Perspectives

Equities

Return dispersion within tech, the gap between the best and worst performing stocks, has widened noticeably this earnings season. This increasing spread is a reminder that broad statements about AI winners may be less useful than they once were, and argues for continued attentiveness to company level fundamentals rather than treating technology as a single trade. The chip selloff shows a related pattern, shares falling sharply even where results were not weak in aggregate, pointing to valuation resetting after a strong run rather than weaker demand, a dynamic worth watching.

Fixed Income

With yields, both nominal and real, having moved higher, it could be useful to focus on the range of plausible rate paths, rather than anchoring to a single expected outcome, when thinking about fixed income right now. Elevated starting yields could continue to offer a reasonably attractive opportunity for investors comfortable that yields might move in either direction from here, though position sizing and duration should reflect each investor's own time horizon and risk tolerance rather than a one size fits all call.

Commodities and Real Assets

Gold has stabilised in recent weeks, though higher bond yields are setting a higher bar for a swift rebound. Oil briefly traded above $90 a barrel this summer on renewed Middle East tensions before easing back, and could remain broadly range bound from here if tensions do not escalate further. Real assets tied to the AI buildout, such as power infrastructure and data centres, remain an area of interest given ongoing capital spending, though valuations there have also risen, which could argue for selectivity over broad exposure.

4. A Few Things To Watch

• Rising real yields. A break in the US 10-year real yield above its 2023 peak would mark the highest real yields since 2008 and could weigh on equity valuations, particularly for growth heavy sectors.

• AI capex versus cash flow. The gap between AI related capital spending and the cash flow it generates remains a live question. Further disappointments, in mega cap technology or the chip supply chain, could prompt additional repricing.

• How stretched are valuations. Valuations across parts of the market are elevated after a strong run, a combination that can make markets more sensitive to disappointment, as July's chip sector reaction showed.

5. Behavioural Perspective

When the fall hurts more than the rise felt good

South Korea's stock market tells a vivid story this year. The KOSPI surged to a record high in mid June, one of the strongest runs among major global markets in 2026, before posting its steepest monthly decline since the 2008 financial crisis in July. Samsung Electronics and SK Hynix, which together make up a large share of the index's weight, fell sharply over the same stretch. Even so, the index remains among the better performing major markets for the year as a whole.

This is a useful real world illustration of loss aversion, a well documented behavioural pattern where losses tend to feel roughly twice as painful as an equivalent gain feels good. An investor holding a concentrated position through Korea's July reversal likely experienced that drop far more acutely than the months of gains that preceded it, even with the position still ahead for the year.

It is also a reminder of why diversification, across both geography and sector, matters as much for how an investment journey feels as for where it ends up. A portfolio concentrated in one sector or a handful of names, as Korea's index is, can turn a strong year into an uncomfortable one along the way.

6. Looking Ahead

A few things could shape the month ahead. The remaining pocket of earnings across the AI hardware supply chain should offer another read on whether infrastructure demand is holding up the way this year's spending suggests. The August jobs report and the Fed's annual Jackson Hole gathering later in the month, could both move the needle on how markets read the rate path from here, especially with so little forward guidance currently on offer. The trajectory of real yields around that 2.5% threshold is also worth watching alongside all of this.

¹ US Treasury; Federal Reserve Bank of St. Louis (FRED); Bloomberg.

² US Bureau of Economic Analysis, Personal Income and Outlays report.

³ Bloomberg; S&P Dow Jones Indices.

⁴ FactSet; Bloomberg Intelligence, consensus earnings estimates.

⁵ Bloomberg; Reuters; S&P Dow Jones Indices.

⁶ Bloomberg.

⁷ World Gold Council.

⁸ Bloomberg commodity data; ICE Brent futures; US Energy Information Administration.