Model Portfolio Pulse: Stocks rally as policy risks build

Markets seemed to quiet down in August, but that didn’t stop stocks from producing a solid performance. The artificial intelligence (AI) and broader momentum trades found their footing after a difficult July, helping the overall US stock market rally. Technology stocks resumed their leadership, but there was an interesting development beneath the surface: Software and services companies significantly outperformed semiconductor and hardware stocks. This shift in leadership helped drive positive relative performance across most Natixis tactical models.

Technology resumes its lead, with a twist

One of the more interesting developments in August was the strength of software and services companies. Earlier in the year, software stocks had been punished over fears that AI advancements might render them obsolete. Rising prices for companies such as Salesforce and Adobe helped drive the relative outperformance of our US large-cap equity managers, who had been buying those stocks into their weakness earlier in the year.

The broader momentum trade also stabilized after a difficult July. However, the type of momentum-factor outperformance seen during the first half of 2026 often requires a lengthy cooling-off period before it can resume. This could be good news for our active managers, which often perform differently than momentum-driven strategies.

The other story investors are focused on is monetary policy. Federal Reserve Chairman Kevin Warsh delivered a more hawkish-than-expected message at Jackson Hole, raising the possibility of additional policy tightening while bond markets are already under pressure globally. With the Fed, European Central Bank, and Bank of Japan all potentially moving toward tighter policies, investors should be mindful of the risks that higher rates create for both stocks and riskier bonds.

August model performance

August was a positive month for Natixis tactical models. Stocks outperformed bonds, helping our riskier models post stronger results than our more conservative portfolios. Most models also beat their benchmarks, thanks largely to the strong performance of our active equity managers.

For our moderate-risk models, several factors contributed to strong results in August, including asset allocation, sub-asset class positioning, and active manager selection. Our ETF holdings added value, helped by an overweight to stocks and allocations to Japanese equities and global metals and mining companies.

With respect to our active mutual funds, our US large-cap equity managers made the difference. Loomis Sayles Growth Fund (LSGRX) and the Oakmark Fund (OAKMX) both had very strong months relative to their benchmarks and were responsible for all the alpha generated by manager selection in August. These two strategies enjoyed two consecutive months of strong relative performance. 

Loomis Sayles Growth Fund outperformed the Russell 1000^® Index by more than 800 basis points (bps) in July and August combined, while the Oakmark Fund outperformed the Russell 1000^® Value Index by more than 500 bps. This made a big difference to overall model relative performance because both funds are large holdings in the models.

Natixis model portfolio positioning

Given rising bond yields and the potential for further Fed tightening, we’re comfortable being only slightly overweight stocks and maintaining flexibility in case a better opportunity emerges. One might even ask why we’re overweight stocks at all given the weak seasonals of September. Our answer is that as long-term investors, we are guided by the business cycle more than anything else, and with US growth still quite robust and showing very little evidence of major slowing, we prefer to maintain an overweight to risk assets. But it’s a carefully calibrated overweight that also accounts for rich valuations and some building macro headwinds.

While we look for opportunities to add risk, we’ve spent more time thinking about how the approach and exposures of our active managers intersect with the investment approach we use across the overall asset allocation. That includes understanding where we can enhance our hedging capabilities across sectors, industries, and geography. We see opportunities to add more to our process given the changing dynamics in markets.

We’re also keeping an eye on longer-term US Treasuries as they cheapen. Buying them could be another way to hedge portfolio risk, only this time against the possibility of the economic cycle turning and creating downside risk for asset prices overall.

At month-end, model positioning was characterized as:

• Slightly overweight stocks versus bonds
• Overweight US stocks
• Tilted toward growth stocks versus value stocks
• Slightly underweight developed market international stocks
• Slightly underweight emerging market stocks
• Neutral duration

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