--- title: "Global equities reach record levels worldwide; bond yields near multi-decade highs." sdDatePublished: "2026-08-09T11:34:00Z" source: "https://www.schroders.com/en/global/family-offices/insights/views-at-a-glance-august-2026/" topics: - name: "monetary policy" identifier: "medtop:20000379" - name: "inflation" identifier: "medtop:20000370" - name: "artificial intelligence" identifier: "medtop:20001298" - name: "corporate earnings" identifier: "medtop:20000178" locations: - "China" - "Japan" - "Iran" - "United States" --- Global equities reach record levels worldwide; bond yields near multi-decade highs. Views at a glance – August 2026 Views at a glance – August 2026 Strong earnings and growing demand for AI continue to support equity markets, although rising bond yields could become a headwind. Equities resilient as bond yields rise Global equities have reached mid-summer at record levels. The fundamental backdrop remains supportive, with resilient economic growth, strong corporate earnings and further evidence of growing demand for AI services. The picture in bond markets is more challenging and could yet become a headwind for equities. Yields on long-dated bonds are close to their highest levels in decades, even after a slight retreat in recent days. Continued concern around energy-driven inflation is one factor behind the move, but not the only one. Heavy debt issuance by the largest technology companies is putting pressure on corporate bond markets and may be increasing competition for investors' capital. There is also more uncertainty about the outlook for monetary policy, as markets adjust to new leadership and a new communication strategy at the Federal Reserve. A good summer for macro traders For traders who profit from volatility in currency and bond markets, there has been plenty to work with in recent weeks. In their first coordinated move in almost 30 years, Japan and the US intervened in currency markets to support the yen. While the currency remains very weak from a longer-term perspective, the resulting rally buys Japanese authorities a little time as they seek to contain the inflationary impact of a weak yen. In the US, inflation concerns have also been behind some sharp market moves. After the Fed opted to leave interest rates unchanged at its latest meeting, in line with expectations, long-dated bond yields rose steeply. The move suggests some investors may be questioning the Fed’s commitment to bringing inflation back to target. We think such concerns are misplaced. However, Kevin Warsh’s intention to provide less guidance on the outlook for interest rates may make slightly higher bond market volatility the new normal. The technology sector has seen even more market drama. Some of the world’s largest companies have seen double-digit percentage moves, both up and down, over the last few weeks. The initial weakness led to the downfall of a multi-billion dollar hedge fund that bet on AI-related stocks with too much borrowed money. Yet it would be a mistake to dismiss the episode as a leveraged trading strategy gone wrong. Volatility is part and parcel of the adoption of a new technology. Investors must get to grips with a new industry’s competitive dynamics and supply and demand mismatches across the supply chain. More encouragingly, the latest results from Microsoft, Amazon and others suggest that demand for new AI services remains robust – and may even be accelerating. They don’t put an end to long-term questions about the industry’s economics. But a rapidly expanding market should create room for more winners. The US economy and markets remain fundamentally supported by a favourable growth backdrop and a strong earnings cycle. This justifies a continued overweight allocation to equities. We have taken advantage of strong recent performance to trim our exposure, while remaining fully weighted. This reflects our view that higher inflation, as well as the evolution of AI, could lead to further volatility over the coming months. Within equities, we continue to see scope to benefit from an active approach, tilting portfolios towards sectors with the strongest earnings growth. While we remain cautious on fixed income overall, we see opportunities in selected government bond markets and are no longer underweight duration. This should provide additional portfolio protection if we were to see a slowdown in growth. 🔼 Up from last month 🔽 Down from last month Global growth, particularly in the US, has remained strong. US consumption has held up well, but risks are to the downside as the effect of tax rebates fades and inflation pressures incomes. AI investment is becoming an increasingly important component of US growth. Inflation remains too high for comfort for central banks, especially in the US, where domestic price pressures are showing little signs of abating. We expect to see greater divergence between central banks, with some forecast to increase policy rates this year and others expected to stay on hold. Following weakness in equity markets in July, valuations fell slightly as earnings remained strong. Earnings have been exceptionally strong within the information technology sector. Government bond yields are high relative to recent history, particularly in longer-dated UK bonds and across the Japanese curve. Credit spreads – the difference in yield vs government bonds – remain expensive relative to history. However, all-in yields are attractive. Equity fund flows remain above their 2025 average, with the strongest inflows concentrated in US equities. However, we have seen investors' risk appetite decrease slightly. Investor positioning remains heavily tilted towards equities and the US dollar, while gold allocations have continued to decrease. Investor sentiment has seen flows move away from technology due to concerns over the durability of the AI boom. A re-escalation of the US-Iran war raising energy prices and inflation. If it lasts for an extended period of time, this could depress global growth. The US and, to an even higher extent, Asian equity markets are concentrated in tech stocks. There have been signs of speculation in AI-related areas. An AI-capex reversal could weigh on consumer spending, employment, and sentiment. US and UK government bond yields remain elevated, reflecting fiscal concerns, higher real yields and policy uncertainty, with political developments adding to longer-term risks. Equities are supported by a strong earnings cycle and a resilient economy, although risks remain. Global equities remain fundamentally strong, as technology and AI-driven capital expenditure have driven earnings upgrades. However, questions over the sustainability of this spending, and how it is funded, together with a high degree of geopolitical uncertainty, warrant a degree of caution. Government bond yields are more attractive than in the past decade, but inflation risks remain. The risk of a further rise in inflation remains and longer-term fiscal concerns haven't disappeared. However, the level of yields offer attractive compensation and warrant a neutral view on duration. Market pricing for rate hikes looks excessive in the UK, opening the door for additional capital gains. Credit is less attractive from a valuation perspective given tight spreads. We prefer assets with limited correlation to traditional markets, given geopolitical uncertainty. This includes gold, commodities, and selective absolute return strategies despite the higher hurdle from cash and bond yields. These provide diversification given risks around government debt and longer-dated bonds. Cash yields remain attractive versus history. Cash provides us with the flexibility to allocate into tactical opportunities that arise during market volatility. Equities are supported by a strong earnings cycle and a resilient economy although risks still remain. US growth remains resilient, supported by consumer spending, government spending and AI investment. However, fiscal support in other markets, and the broadening of the AI theme beyond tech, may create opportunities beyond the US. Europe faces challenges from China’s excess supply and heightened political risk. Valuations are slightly above historical levels and earnings expectations remain weak, although fiscal support has aided a recovery from a low base. Earnings are improving, despite slightly elevated valuations. Strong demand, foreign inflows, governance reforms and new leadership support a more durable cycle. Monetary policy is normalising but remains at accommodative levels and the yen has started to see government intervention. Valuations and the earnings outlook remain attractive. Asia remains a key player in the AI buildout and a beneficiary of a re-opening of the Strait of Hormuz. However, we acknowledge that markets have become increasingly concentrated. UK valuations remain attractive relative to both developed and emerging markets, despite subdued investor sentiment. The region acts as a diversifier that tends to be well placed in a stagflationary enviroment given its more defensive sector composition and energy exposure. Markets have been concerned about the sustainability of current levels of capital expenditure. However, sector fundamentals remain robust, with a strong earnings season and further evidence of rising demand for AI. We have moved our position from positive to neutral as earnings expectations lag global equities for 2026 and 2027. The sector benefits from positive structural drivers over the longer-term (e.g. demographics) but there are no clear earnings catalysts on the horizon. Market pricing for rate hikes looks excessive in the UK, opening the door for additional capital gains. Credit is less attractive from a valuation perspective given tight spreads. While higher US borrowing requirements and inflation pose risks, elevated yields provides some degree of compensation. Japanese and UK government bonds look particularly compelling. Credit spreads remain expensive versus history, but fundamentals are still reasonable. we prefer shorter-duration credit, including high yield. We also remain positive on high-quality, asset-backed securities where valuations look attractive. Markets have priced in the inflationary effect of the Iran war on global economies. Real yields remain in positive territory on long-dated inflation-linked bonds, but valuations do not look attractive relative to nominal government bonds. Emerging market growth remains resilient, supported by firmer activity and easier financial conditions, though fundamentals vary across countries and tariffs remain a headwind. We prefer assets with limited correlation to traditional markets given geopolitical uncertainty. This includes gold, commodities, and selective absolute return strategies despite the returns available from cash and bonds. These provide diversification given risks around government debt and longer-dated bonds. Trend-following, equity market neutral and global macro to maintain diversification during macro uncertainty. Attractive revenue streams, especially in renewables, infrastructure and specialist property. Provide useful diversification, supported by structural demand for industrial metals linked to the energy transition and exposure to higher energy prices amid ongoing Middle East tensions. inflation shocks. Despite recent volatility, gold remains attractive given geopolitical tensions, central bank buying, and rising debt levels. Subscribe to our newsletters to receive our latest news and insights Webinar: Market update and economic outlook – July 2026 Second quarter review and outlook 2026 Direct equity market musings: a matter of expression