Rinus Veejay 76, representing Juncos Hollinger Racing, participates in the NTT IndyCar, Indy Car, IRL, USA SERIES Practice 1 for the Freedom 250 Grand Prix in Washington, DC, USA, on Saturday, August 22, 2026. The race is scheduled for Sunday, August 23 and will be the first ever INDYCAR race held in the nations capital. Copyright: xAndrewxThomasx/xCNPx/MediaPunchx No Use Switzerland. No Use Germany. No Use Austria
August was caught in an intense tug-of-war battle: earnings proved favorable, but yields quickly moved against investors, and the two forces pulled in opposite directions for majority of the month. Coming off a steep July federal deficit (-$432bn), investors worried that the July data would create a slippery slope into August. As deficit worries grew, the Fed turned more hawkish, yet riskier assets gave up little ground. The more decisive action was in positioning: investors sought shelter in real assets at a record pace, posting the second highest monthly net inflow on record of $10.1bn, as investors looked to protect against alarming inflation. Uncertainty in the U.S. also shook the dollar, as markets begin to price U.S. fiscal risk more explicitly.
The Fed was the focus in August. The Federal Open Market Committee (FOMC) left rates unchanged at its July meeting, which put the attention squarely on newly appointed Chair Kevin Warsh for a read on where policy heads next. However, bond investors did not get the message they expected. With inflation still elevated, energy prices rising due to the Middle East conflict, and the deficit back in view, the market was caught off guard; the front end of the curve repriced quickly toward the probability of future rate hikes. Meanwhile, the 30-year Treasury yield climbed to 5.31%, a level not seen since June 2007. As pressure built at the long end of the curve, the U.S. Treasury announced plans to double its liquidity-support buyback for longer-dated securities, increasing the maximum purchase price to $4bn from $2bn. At the Jackson Hole Symposium, Chair Warsh left bond investors with minimal signs of relief, cementing his stance that combating inflation was the Fed’s primary focus, even as yields ticked higher.
Equities absorbed the rates shock better than most expected. The S&P 500 finished August 2.72%, due to a strong recovery within the information technology section and favorable earnings. On the other hand, data from the labor market was not as pleasant, July nonfarm payrolls dipped by 23,000, well below the Reuters estimate of 80,000. The unemployment rate ticked lower too, but for the wrong reasons: the labor force shrank. The participation rate dropped to a five-year low, which levels out the headline rate, while saying nothing good about job creation.
Oil prices remained volatile throughout August, with Brent crude experiencing a sharp selloff before recovering its losses towards month-end. Brent entered the month at $90.12 per barrel before falling nearly 12% to a monthly low of $79.36 as tensions began to ease. However, the relief was short-lived, as prices quickly reversed course and climbed steadily through the remainder of the month. Brent crude oil ended August at $90.49 per barrel, as modest 0.4% increase from where it started.
Fund Flows Summary
The U.S. fund universe pulled in $126.9bn for the month of August, with $77.1bn going into risk-on assets, while $49.7bn were parked in money market funds. Bonds carried the month. Fixed income took in $73.2bn, its best haul of the summer, while equity funds lost $8.5bn and mixed-assets funds dipped $7.1bn. Commodities were on a hot streak, drawing in $10.1bn and Alternatives added $9.3bn. The August rotation was clear: investors chased yield, sought protection, and sold the middle of the U.S. equity market as inflation concerns continued to loom and geopolitical tensions remained elevated.
Within the Fixed Income universe, net flows were concentrated to the front end. Short/Intermediate Investment-Grade Funds gathered $23.6bn and Short/Intermediate Investment Government and Treasury Funds pulled in $18bn. General Domestic Taxable Funds added $10.bn, while World Income Funds attracted $5.2bn, as some of the demand reached for non-dollar carry. Longer government and treasury funds were the only classifications within the taxable universe to report outflows; however, the outflow was minimal compared to peers, with an outflow of $100m, which tells that investors wanted the coupon, but not the duration. High Yield Funds took in $500m, while Emerging Markets Debt Funds rallied at $900m. On the municipal front, muni’s gathered $7.5bn, a slight decrease from July’s reported value of $8.2bn.
Equities were on the move, with investors rotating away from sector dominated themes and finding new ground across the pond. Large Cap Funds gathered $6.4bn, and Developed International Funds took in $6.8bn. Emerging Market Funds added $3.5bn, while Equity Income Funds pulled in $2bn. This $18.7bn inflow was completely overshadowed by the enormous outflow from the rest of the U.S. market universe. Sector Funds lost $12.4bn, Multi-Cap Funds dipped $8.7bn, Mid-Cap Funds slipped $8.7bn, Developed Global Markets Funds tumbled $3bn, and Small-Cap Funds eased $700m.
Within the mixed-assets universe, the downpour continues, as the classification posted its eight consecutive net outflows for 2026 of $7.1bn. The theme within this asset class is investors who are interested in bonds or equities are buying them directly rather than buying a blended product.
Alternatives and commodities picked up what equities and mixed assets lost. Alternative equity gathered $9.3bn; most of the favorable inflows were into options-based and defined-outcome strategies. Commodity funds posted a massive gain of $10.2bn, extending its impressive run due to the energy-driven inflation scare and the market pricing a Fed hike. Between these two asset classes, the groups absorbed $19.5bn, almost exactly what equities and mixed assets gave up.
Money market funds added $49.6bn, with the bulk of the inflows going into taxable money market funds, while tax-exempt money market funds slipped $500m. The enormous inflow into money market funds was a blend of investors sheltering for direction, and the usual corporate pre-positioning for the month of September. With the SEC seven-day yield near 3.95%, money market funds are still competitive with anything outside the front end of the bond market.
