Monthly Income monthly commentary – Review of August 2026

Like 2025, 2026 has been eventful, but global equity returns remain in the mid-teens so far this year. Markets made further gains in August despite higher bond yields and geopolitical uncertainty. Artificial intelligence (AI) remains an important source of support, but investment is broadening beyond US mega-cap companies into semiconductors, data centres, power, and infrastructure. This is encouraging, although high levels of spending, supply bottlenecks and pressure on power networks suggest progress may remain uneven.

Strong foundations, but expectations remain high

When markets are performing strongly, some caution can be healthy. The underlying backdrop remains supportive, with resilient economic activity, strong earnings growth and the benefits of AI investment spreading beyond technology. However, valuations and expectations are also high. Markets respond not only to rising profits, but also to whether results exceed what is already reflected in prices. With indices near record highs, solid earnings may not be enough if company guidance disappoints. This reinforces the importance of careful selection and diversification.

Interest-rate decisions remain finely balanced

The outlook for interest rates remains uncertain as markets weigh higher energy costs and resilient demand against softer labour markets and slowing economic activity. The US Federal Reserve’s September decision remains finely balanced, while the Bank of England is expected to keep rates unchanged. Higher interest rates cannot ease energy pressures caused by supply constraints, but they can reduce demand. Policy is therefore likely to remain dependent on economic data, with fewer rate rises than inflation risks alone might suggest.

Income outlook remains resilient

Dividends should remain resilient, although growth is likely to be moderate and uneven across regions. Strong earnings and balance sheets support payouts, but share price gains have reduced dividend yields. In fixed income, higher government bond yields have improved the outlook for income, while yield curves have steepened in some markets. However, tight credit spreads offer limited additional reward for taking corporate risk. Overall, the outlook for income remains reasonable, although yields are still well below their previous peaks.