The main points of the allocation meeting on August 12, 2026
Equities rebounded sharply last week, with major indices closing at record highs. The S&P 500 rose 3.6% and the Nasdaq 5.2%—the largest weekly gains for both since April—while the Stoxx 600 also reached a new record, up 1.9%. Emerging market equities were a notable outlier, falling 0.8% in euro terms. The rally was broad-based: the Philadelphia Semiconductor Index jumped 9.2% after a difficult July, and US high-yield credit spreads tightened 15 bps, their joint-biggest weekly move since April. The move was supported by a de-escalation in Middle East tensions and a sharp pullback in energy prices, with Brent crude falling 7.3% over the week to $83.55/bbl.
Last week's US jobs report reduced the market's fear of a September Fed hike. Headline payrolls unexpectedly fell by 23k, private payroll growth slowed to just 30k, and the prior two months were revised down by a cumulative 103k, though the unemployment rate fell to 4.1%—its lowest since early 2025. Weakness was concentrated in leisure/hospitality and local government education, while goods-producing and construction employment posted their strongest gains in months. The priced probability of a September Fed hike fell to 44% over the week, down from 72% the week before, and Treasury yields saw their largest weekly declines since May.
August and September are historically the most volatile and weakest months for equities, but the fourth quarter has typically been the strongest. Since 1950, the S&P 500 has averaged a decline of 0.7% in September—the only calendar month with a negative average return, and positive in just 44% of years—while August has also tended to be soft and volatile. By contrast, the fourth quarter has delivered an average gain of 4.2% since 1950 and finished higher in 80% of years, historically the second-strongest three-month stretch of the year after November–January. Seasonality is a base rate, not a forecast, but it is a useful backdrop as markets enter the historically choppier part of the calendar.
Global earnings growth remains extremely strong, broad-based, and still improving. With 88% of S&P 500 companies having now reported, blended Q2 earnings growth stands at 32.0% excluding Alphabet and Amazon's outsized surprises (50.4% including them)—the second consecutive quarter above 25% and the seventh consecutive quarter of double-digit growth. The strength isn't confined to the US: emerging market earnings growth is tracking around 60% this year, led by South Korean technology companies, and European and Japanese earnings have also remained robust, supported by continued AI infrastructure demand among other reasons.
We overweight equities and underweight money markets. Within equities, we overweight EM equities, underweight European equities, and remain neutral elsewhere. In fixed income investments, we overweight high yield corporate bonds and underweight government bonds, while remaining neutral on emerging market bonds and investment grade corporate bonds.
