Mullaney on the Markets
Crosscurrents
By Michael Mullaney | Director of Global Markets Research
Published September 2026
The S&P 500 gained 2.72% in August, supported in part by the final leg of what’s been a stellar earnings season. Equity investors were willing to overlook conflicting messages from two arms of federal economic policy during the month, with Federal Reserve Chair Kevin Warsh signaling that an interest rate hike (or hikes) would likely be necessary to quell the country’s persistent inflation problem, while Treasury Secretary Scott Bessent announced a “super-sized” Treasury bond buyback program in an effort to lower long-term interest rates. Bond investors seemed skeptical of the merits of Secretary Bessent’s proposal; until the August 19 buyback announcement, the Bloomberg
U.S. Aggregate Bond Index had risen by 0.84%, but then fell by 0.45% from that point through month-end. The 10-year Treasury ended the month at a yield of 4.75%, its highest level of the year. International equities also finished the month in positive territory, with the MSCI EAFE Index of developed markets returning 2.00% in August.
Year to date, the S&P 500 returned 13.12% and MSCI EAFE 14.24%, while the Bloomberg U.S. Aggregate Bond Index remained in the red, down 0.31%.
On August 13, the S&P 500 hit its 27th record high for the year, with more than 68% of the benchmark’s underlying stocks trading above their 200-day moving averages, an impressive feat in what’s been a challenging year from a geopolitical perspective.
Sector returns
Energy led all S&P 500 sectors once again in August with the price of both West Texas Intermediate (WTI) and Brent crude oil continuing to climb higher as the 60-day Islamabad Memorandum of Understanding (MOU) between the United States and Iran expired; the Strait of Hormuz remained essentially closed and military strikes by both countries continued.
After a poor showing in July, the Technology sector rallied to a second-place finish in August. Because of the sector’s 37.4% weight in the S&P 500, it was responsible for 83% of the benchmark’s monthly return. Two stocks—Nvidia (up 9.98%) and Microsoft (up 9.37%)—were responsible for the bulk of the sector’s outperformance; the two stocks represent nearly 14% of the S&P and roughly 36% of the Tech sector.
Utilities, often considered to be a bond surrogate sector, pulled up the rear given the pressure on the bond market during the month.
With a second month of strong returns, the Energy sector maintained its lead on a year-to-date basis for all S&P 500 sectors, while Technology kept second place and Consumer Discretionary remained the laggard through August. Tesla, with a year-to-date decline of 18.18% and an 18% weight in Consumer Discretionary, contributed more than 40% to the sector’s performance.
Style returns
Growth led value by 1.32% in August when averaged across the three Russell market capitalization ranges. Within the large-cap space it was once again the Technology sector that was the primary driver of the return differential; while the returns for the sector in each style category were similar (up 6.26% in the value index vs. up 6.74% in growth), it was the weighting that made the difference: 52.54% for the sector in the Russell 1000 Growth Index versus 18.77% in the Russell 1000 Value Index. It was the same story in mid caps, where Tech carried a 31.57% weight in the growth index vs. a 10.45% weight in the Russell Midcap Value Index.
In small caps, it was Financials that made the biggest difference; the Russell 2000 Growth Index recorded a 0.76% gain for the sector versus a 1.53% loss for Financials in the Russell 2000 Value Index—while the value index had almost three times as much Financials exposure as the growth index.
Year to date, value maintained a lead over growth by 14.63% when averaged across the three capitalization ranges—value stocks’ best relative performance since 2022.
More risk on than risk off in August
August saw the risk-on outperformance of low-quality and high-beta stocks, but small caps (a risk-on factor) lagged large caps, though this was almost entirely due to the outperformance of large-cap Tech stocks, which accounted for approximately 80% of the return differential between the Russell 1000 and the Russell 2000 Indexes.
On a year-to-date basis, risk-on factors have dominated.
Lower returns for non-U.S. stocks in August, but outperformance over the year to date
Developed market international stocks (as measured by the MSCI EAFE Index) lagged the S&P 500 in August in both local currency and U.S. dollar (USD) terms, though USD returns were higher as the basket of six foreign currencies in the Bloomberg U.S. Dollar Index (DXY) posted overall gains versus the greenback. The euro is the largest currency weight in the DXY and gained 0.76% vs. the USD during August. Meanwhile, the returns of emerging-market stocks were higher during the month, particularly in dollar terms as the MSCI EM Currency Index gained 1.74% versus the dollar.
Year to date, emerging- and developed-market stocks led the S&P 500 in both local currency and USD terms. The strong year-to-date performance of emerging markets—nearly double the gains of the S&P 500—has been due almost entirely to two countries—Taiwan (up 63.89%) and South Korea (up 92.08%)—and one industry: semiconductors.
Looking ahead
To say that the Q2 earnings season was stellar might be an understatement, as according to FactSet (with 97% of S&P
500 companies having reported) earnings growth for the quarter was up a remarkable 52%, the highest growth rate since Q2 2021 when the U.S. was recovering from the effects of COVID-19. Moreover, 86% of the companies reporting
beat their estimates by an average of 26.5%. That’s the highest earnings surprise on record since FactSet began
tracking the metric in 2008.
The Energy sector led the earnings hit parade during the quarter (up 146.3%) and is expected to do so for the third
quarter as well (estimates call for earnings growth of 100.7%). While other sectors are expected to see more modest Q3 earnings growth, the S&P 500 is still expected to increase Q3 earnings by a robust 28.2%. If so, price levels for the index should remain well supported.
The macroeconomic backdrop is also reasonably positive, as Q3 GDP is forecasted to grow by 4.8% as measured by the Atlanta Fed’s GDPNow Model—well above the forecast from the economists polled by Wolters Kluwer for the Blue Chip Economic Indicators publication.
The artificial intelligence (AI) buildout has been a major factor in the strength in the economy and is not expected to diminish any time soon.
Two potential flies in the ointment that could hinder forward growth (and stock returns) are inflation and interest rates. In terms of inflation, Fed Chair Warsh stated in his August 28 speech at the Jackson Hole Economic Policy Symposium that regarding “the price-stability side of our mandate, the numbers are more concerning. The Fed’s preferred measure of inflation, the 12-month change in the PCE price index, stands at 3.7 percent, while the six-month change is 4.1 percent. The comparable measures from the consumer price index (CPI) are also elevated, as are the core measures of both PCE and CPI inflation. None of these measures are perfect, but they all tell a similar story: Inflation is running above our 2 percent target. So, the Fed’s predominant focus right now should be on prices.”
The bond market reaction to the speech was swift, as reflected by the change in the futures market’s probability of a 25-basis-point hike by the Federal Reserve.
Two other headwinds, which unfortunately represent now-familiar territory, are tariffs and the energy bottleneck in the
Strait of Hormuz, neither of which appears likely to resolve soon.
Also, with midterm elections on the horizon, investors should expect a heightened level of volatility in the stock market
through September at a minimum, subsiding once the candidates and platforms are established.
But returns in the wake of midterm elections have tended to be robust.
Here’s to hoping history repeats itself!
Boston Partners Global Investors, Inc. (“Boston Partners”) is an investment adviser registered with the SEC under the Investment Advisers Act of 1940. The views expressed in this commentary reflect those of the author as of the date of this commentary. Any such views are subject to change at any time based on market and other conditions and Boston Partners disclaims any responsibility to update such views. Past performance is not an indication of future results.
Discussions of securities, market returns, and trends are not intended to be a forecast of future events or returns. You should not assume that investments in the securities identified and discussed were or will be profitable.
Important information
Beta is a measure of a portfolio’s market risk relative to its benchmark. In general, a beta higher than 1.00 indicates a more volatile portfolio and beta lower than 1.00 indicates a less volatile portfolio in relation to its benchmark. The Consumer Price Index (CPI) is a commonly used measure of inflation that tracks the variation in prices paid by typical consumers for retail goods and other items. Core CPI excludes the more volatile food and energy segments. Core PCE (Personal Consumption Expenditures) is a measure of inflation that excludes the prices of food and energy, which tend to be more volatile. The Federal Open Market Committee (FOMC) is a rotating group of 12 members of the Federal Reserve system tasked with setting and implementing monetary policy. The Federal Reserve Bank of Atlanta’s GDPNow model provides a real-time estimate of GDP growth for the current quarter based on available economic data. Gross domestic product (GDP) is the total market value of all the goods and services produced by a country and is a closely watched reflection of overall economic health. West Texas Intermediate (WTI) and Brent crude are two of the more easily refined types of oil and serve as key benchmarks for oil prices.
Index definitions
The Bloomberg U.S. Aggregate Bond Index (Agg) tracks the performance of intermediate-term investment-grade bonds traded in the United States. The Bloomberg U.S. Dollar Index (DXY) is used to measure the value of the dollar against a basket of six foreign currencies. The value of the index is a fair indication of the dollar’s value in global markets. The MSCI Emerging Markets (EM) Currency Index tracks the performance of emerging market currencies relative to the U.S. dollar where the weight of each currency is equal to its country weight in the MSCI Emerging Markets Index. The MSCI EAFE Index tracks the performance of large- and mid-cap equities traded across global developed markets, excluding the United States and Canada. The MSCI Emerging Markets Index tracks the performance of large- and mid-cap equities traded in global emerging markets. The Russell 1000 Index tracks the performance of the 1,000 largest companies traded in the United States. The Russell 2000 Index tracks the performance of the 2,000 smallest companies traded in the United States. The Russell 1000 Growth and Value Indexes track the performance of those large-cap U.S. equities in the Russell 1000 Index with growth and value style characteristics, respectively. The Russell 2000 Growth and Value Indexes track the performance of those small-cap U.S. equities in the Russell 2000 Index with growth and value style characteristics, respectively. The Russell Midcap Growth and Value Indexes track the performance of those mid-cap U.S. companies in the Russell 1000 Index with growth and value style characteristics, respectively. The S&P 500 Index tracks the performance of the 500 largest companies traded in the United States. The S&P 500 Equal Weight Index also tracks the performance of the 500 largest companies traded in the United States, but weights each company equally, rather than proportionally according to market cap. S&P credit ratings, which range from AAA (highest) to D (default), are assigned by S&P Global to individual companies to indicate their relative creditworthiness. The VIX, or CBOE Volatility Index, tracks expectations for future volatility of the stock market based on the prices of underlying S&P 500 Index options. It is not possible to invest directly in an index.
Market capitalization breakpoints
The breakpoints for capitalization ranges should be viewed only as guideposts and will change over time. In general, small-cap stocks are considered to have market caps of between $150 million and $7 billion, mid caps to have market caps between $7 billion and $50 billion, and large caps to be those companies with market caps above $50 billion. Boston Partners Global Investors, Inc. (Boston Partners) is composed of three divisions, Boston Partners, Boston Partners Private Wealth, and Weiss, Peck & Greer (WPG) Partners, and is an indirect, wholly owned subsidiary of ORIX Corporation of Japan (ORIX).
9122269.1
