If you’re waiting for a “perfect” backdrop before the market can rally, you might be waiting forever. August was a good reminder of that. Despite ongoing questions about oil prices, the Federal Reserve’s next move, new tariffs, and interest rates sitting at multi-decade highs, stocks pushed broadly higher for the month.
The takeaway for investors isn’t to try to solve every headline in real time — it’s that portfolios built around long-term goals are what actually move the needle on financial success. Here’s a closer look at what drove markets in August, and what’s worth keeping an eye on heading into fall.
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The Month in Numbers
- Stocks rallied across the board. The S&P 500 gained 2.6%, the Nasdaq jumped 3.9%, and the Dow rose 1.3%. Year-to-date, those indexes are now up 12.3%, 13.5%, and 10.7%, respectively.
- Volatility eased. The CBOE VIX, a common gauge of market fear, slipped below its long-term average to close the month at 16 — down from a high of 21 in July.
- International markets joined the rally. Developed international markets (MSCI EAFE) returned 1.8%, while emerging markets (MSCI EM) returned 3.2%, both in U.S. dollar terms.
- Bond yields hit new highs. The 30-year Treasury yield touched its highest level since 2007, ending August at 5.24%. The 10-year closed at 4.75%. Even so, the Bloomberg U.S. Aggregate Bond Index still managed a positive 0.4% for the month.
- Commodities were mixed. Oil traded in a range after climbing in July — Brent crude ended near $90.68/barrel and WTI near $86.27/barrel. Gold surged to $4,437.38/oz and silver climbed to $66.58/oz, while the U.S. Dollar Index slipped to 99.43.
- The economy sent conflicting signals. Second-quarter GDP growth held steady at an annualized 1.5%, but the July jobs report disappointed — payrolls actually fell by 23,000 against expectations for an 80,000 gain, even as unemployment ticked down slightly to 4.1%.
Why Are Rates So High — and Is That a Bad Thing?
Interest rates have been one of the defining stories of this market cycle, and August pushed that story further. The 30-year Treasury briefly topped 5.3%, a level not seen in nearly 20 years, while the 10-year hovered around 4.8%.
It’s tempting to assume rising rates are automatically bad news for markets, but the reason rates are rising matters. A few years ago, inflation was the main driver pushing yields higher. Today, it’s increasingly “real yields” — inflation-adjusted returns — that are climbing, which is really just a sign of a healthy economy backed by strong corporate profits. Historically, that’s a constructive signal, and it helps explain why stocks and interest rates have been hitting highs at the same time.
There’s a silver lining for long-term investors too: higher rates mean better income potential across bond portfolios going forward. The flip side is that rising rates weigh on the value of existing bonds, which is a big reason the Bloomberg U.S. Aggregate Bond Index has been roughly flat for the year. The lesson here isn’t to avoid bonds — it’s to think about fixed income in the context of a diversified portfolio and your specific goals.
Inflation, meanwhile, hasn’t fully cooperated. July’s headline PCE inflation came in at 3.7% year-over-year, with core PCE at 3.3% — both comfortably above the Fed’s 2% target. At the Fed’s Jackson Hole symposium in late August, Fed Chair Kevin Warsh hinted that a rate hike could come sooner than expected. Markets are now pricing in at least one hike this year, with the possibility of a second by early next year.
Corporate Earnings Are Doing the Heavy Lifting
The real story behind August’s rally is earnings. The S&P 500 hit new all-time highs, fueled by second-quarter results that beat expectations across the board. Analysts now expect full-year S&P 500 earnings-per-share to reach $349, with growth projected at 15% annually over each of the next two years — more than double the historical average of 7%.
That optimism isn’t riding on a handful of mega-cap names, either. Ten of the eleven S&P 500 sectors posted year-over-year earnings growth, and nine of those posted double-digit gains. Analysts point to AI infrastructure investment, higher oil prices, and broad-based sector strength as the key drivers — which suggests the whole economy is contributing to corporate profitability, not just a narrow slice of it.
Strong earnings have also helped keep valuations in check. The S&P 500’s price-to-earnings ratio is sitting around 20x — above the historical average of 16x, but down from recent peaks. Elevated valuations don’t tell you much about where markets go next month, but they’re a good reminder to stay diversified across sectors, asset classes, and geographies for the long run.
Trade Policy Is Still a Moving Target
Tariffs made headlines again in August, with tensions flaring between the U.S. and key trading partners, including Canada. The backdrop here is genuinely complicated: after the Supreme Court struck down last year’s “Liberation Day” tariffs in February, the administration rolled out new tariffs under different legal authorities, such as Section 301 of the Trade Act of 1974. Those, in turn, have already expired and been replaced by yet another round under different trade laws — each with its own rules. Meanwhile, the government has started refunding the original reciprocal tariffs, with $129 billion already accepted for processing by U.S. Customs and Border Protection.
Despite all this back-and-forth, the doomsday scenarios many feared haven’t materialized. Businesses have largely adapted — adjusting supply chains, tweaking pricing, and managing costs — which has muted the inflationary impact of higher import costs. That said, trade policy is likely to remain a wildcard for global markets for the foreseeable future.
The Bottom Line
August was proof that markets don’t need calm headlines to move higher. Between elevated interest rates, sticky inflation, and unresolved trade tensions, there was no shortage of reasons for caution — yet strong corporate earnings and resilient economic fundamentals carried the day.
For long-term investors, the message stays the same: don’t let short-term noise dictate long-term decisions. A well-balanced, goal-oriented portfolio remains the best way to navigate whatever comes next — whether that’s a Fed rate hike, another twist in trade policy, or the next earnings season.