Markets Update - 8/17/26

Quick Summary

• US equity indices started Monday mixed, with mixed with tech shares higher but non-tech lower following Claude chatbot maker Anthropic’s release to prospective investors that its second-quarter revenue jumped at least 14-fold from a year earlier, but non-tech shares pressured by rising crude prices and bond yields.
• The main macro pressure point was the US-Iran backdrop, with the 60-day ceasefire agreement expiring Monday and President Trump saying he was not interested in extending the agreement. Meanwhile, Iran signaled a more offensive posture if diplomacy fails.
• The rise in oil also kept pressure on long-end Treasury yields, with the 30-year yield climbing to its highest level since 2007 and the 10-year yield closing at its highest since January of last year.
• The Nasdaq Composite would open modestly higher, the S&P 500 around flat, and the Dow Jones Industrial Average and Russell 2000 lower, but they steadily converged into a narrow range of losses as the session progressed. At day’s end, the S&P 500 fell 0.5%, the Dow Jones Industrial Average declined 0.5%, the Russell 2000 slipped 0.4%, and the Nasdaq Composite lost 0.3%.
• Under the surface, breadth was weak. Just one of the 11 S&P 500 sectors finished higher in Energy while Communication Services, Consumer Discretionary, Financials, and Staples all fell more than 1%. Keeping the selloff contained was strength in the AI-trade which kept the megaweight Technology sector close to flat despite weakness in most megacap tech names, as semiconductors and memory stocks outperformed. The PHLX Semiconductor Index rose +1.6%.
• Tomorrow attention turns to a full US economic data docket.

US equity indices started the day mixed with Nasdaq modestly up, SPX around flat levels, and DJIA and RUT lower, but they would all converge into a narrow 0.2pp band between -0.32% and -0.52%.

Market commentary

US equities

“We continue to see strong risk appetite among institutional investors, particularly in areas where earnings are strongest, such as US equities and technology,” said Marija Veitmane, head of equity research at State Street Global Markets.

“Any signs of stress in the outlook [from consumer companies this week], against a backdrop of slower hiring and higher borrowing costs, could challenge the resilient growth narrative,” said Laura Cooper, global investment strategist and head of macro credit at Nuveen.

“You’ve had the shift in interest rate expectations which feeds into some of those tech names, I think that helps explain some of that big rally we’ve had recently in tech after quite a quiet July where we had all those strong earnings but really tech didn’t do very much,” Rory McPherson, chief market strategist at Wren Sterling, told CNBC’s “Squawk Box Europe” on Monday.

“The bears are just scared,” Hackett told MarketWatch. He added that it’s a positive sign for the market that the S&P 500 was holding up near its recent record high, despite relatively light late-summer trading volumes that can exacerbate swings, more negative headlines out of Iran and rising long-term bond yields. While the bears continue talking about those risks, plus uncertainty around the artificial-intelligence boom, “nobody is willing to put their money where their mouth is,” he said. “The feeling is if you go to the sidelines, you’re going to get whipsawed again.”

Bonds

“Whoever’s issuing, be it a government or a hyperscaler or a non- hyperscaler credit, is now competing with more borrowers,” said Tony Rodriguez, head of fixed-income strategy at Nuveen Asset Management. “And therefore yields have to be higher.”

“Investors are increasingly focused and concerned about the growing amount of US debt and America’s lack of fiscal discipline,” said Anthony Saglimbene at Ameriprise. “And frequent, large-scale treasury auctions are a chance for the bond market to push back against the government’s eroding fiscal trajectory, as they demand higher yields for the auctions to clear.” The calculus regarding longer-term Treasury holdings increasingly requires that an investor be comfortable financing ever-larger government borrowing needs at current yields, he added. “And should investors require more compensation in the future as more Treasury auctions come to market, it will be increasingly important for corporate fundamentals and AI momentum to continue meeting expectations if the equity market is to keep looking past a higher-for-longer rate environment,” Saglimbene concluded.

Dollar

“Resilient growth, lessening inflation concern, loose financial conditions and low volatility create an ideal backdrop for risk. It’s hard to see an obvious catalyst for a significant dollar rebound before Jackson Hole.” — Skylar Montgomery Koning, macro strategist.

“We do not expect the dollar to be appreciating at ‘full throttle’ and the road ahead may be bumpy,” said Paul Mackel, global head of FX research at HSBC Holdings Plc. “But with sizeable gaps to interest-rate differentials remaining, we believe the currency can shift back to a higher gear and narrow the gap over time.”

Fed

“The recent run of softer economic data has reduced the urgency for near- term tightening, so the minutes may carry less weight,” Cooper said. Still, “in a regime of the Fed keeping their cards close to the chest, any signals could be of outsized importance.”

“The key question: Are more committee members beginning to migrate toward the hawkish camp, or was the recent dissent more isolated than indicative of a broader shift in sentiment?” Darrell Cronk at Wells Fargo Investment Institute said. “The hawks appear dug in, the question is how many more come to their camp between now and September.”

Market bets on Fed hikes are still too aggressive given that inflation in the world’s biggest economy is cooling, according to Goldman Sachs Group Inc.’s Jan Hatzius. A rate increase at the central bank’s September meeting has become “very unlikely” due to softer retail sales data, disappointing employment numbers and slowing inflation prints, he said.

Iran

“We’re back to watching the negotiations in real time, and I think a lot of people have just turned a blind eye to it,” said Jason Stephens, Evertern Wealth founder. “We think that there’s more bias to the downside in oil prices than there is the risk to the upside at this point in the game” due to the prospect of a deal being reached, especially as the midterm elections draw closer, he said. “There’s a lot of pressure on the administration right now to really focus heavily on this and get something done,” Stephens added.

In today’s Markets Update

• A deeper look at Monday’s stock and sector breakdown, including broad sector weakness, Energy’s lone leadership, Technology’s relative resilience, semiconductor and memory strength, and pressure across the other megacap growth sectors.
• A look at selected CNBC midday movers and Bloomberg corporate headlines, including memory chips, Intel, Workday, Alibaba, Intuitive Machines, EyePoint, JetBlue, Onto Innovation, Anthropic, Nvidia/OpenAI, L3Harris, RTX, and Berkshire.
• Updated technical charts across the SPX, Nasdaq, Russell 2000, and equal-weighted SPX.
• A review of market breadth and participation, including large individual winners and losers, the NYSE Composite 52-week highs versus lows, the strength of financials, Goldman on hedge fund buying, and the weakness in Nike shares.
• A look at the rates and Fed backdrop, including the steepener move in Treasury yields, Goldman’s hold expectations, and Jim Bullard on why a rate hike makes sense.
• A look at volatility and market structure, including VIX, VVIX, 1-day VIX, and the high-gamma backdrop.
• A review of cross-asset trends, including WTI crude, the dollar, gold, copper, natural gas, and bitcoin.
• A look at market setup and breadth-related posts from Morgan Stanley’s Wilson, Yardeni, MarketWatch/Jefferies on small caps, MarketWatch on Hindenburg Omen clusters, and Prof Plum on ownership and crowding.
• A look at AI infrastructure, memory, and capex-related posts from BoA/Hartnett, Torsten Slok, ZeroHedge/JPM/Jefferies, the WSJ, BoA, and MarketWatch/Citi.
• A look at inflation, credit, and dealmaking posts from the Cleveland Fed, BoA, Goldman, BoA/Hall on M&A, and the FT on private credit.
• An update on the NAHB housing market index.
• A wrap-up on the AI trade, oil and Iran risks, long-end yields, breadth, high gamma, and the near-term market setup.
• A look ahead to Tuesday’s calendar, including US economic data, Fed speakers, Treasury auctions, SPX earnings, and ex-US highlights.

Stock and sector breakdown

SPX sector breadth turned quite negative with just one of the 11 sectors higher in Energy on the back of higher oil prices. Keeping the selloff from getting out of hand though was Tech (which is nearly 40% of market cap) staying close to flat at -0.2%. But the other two megacap growth sectors (Comm Services & Cons Discretionary) were both down over 1% as were Financials and Staples.

The late climb in oil left the energy sector (+0.9%) as the only S&P 500 sector to finish higher and overshadowed what had been a strong showing from semiconductor stocks earlier in the session. The PHLX Semiconductor Index (+1.6%) still outperformed considerably, though it surrendered a sizable portion of an earlier gain that had topped 2.5%. Memory stocks remained a bright spot, with Sandisk (SNDK 1786.85, +145.74, +8.88%) extending its recent surge after Commerce Secretary Howard Lutnick said the Trump administration does not want Apple (AAPL 305.59, -0.34, -0.11%) purchasing Chinese memory chips. Applied Materials (AMAT 535.31, +28.13, +5.55%) also rebounded sharply after moving lower on Friday despite delivering a strong beat-and-raise earnings report.

The fading semiconductor rally, combined with weakness across other large technology names, ultimately pulled the information technology sector (-0.2%) into negative territory. Continued enthusiasm surrounding the AI trade provided some support after Anthropic reported a massive jump in revenue, while outside the sector, SpaceX (SPCX 146.23, +6.23, +4.45%) extended its recovery from post-IPO lows following regulatory filings showing newly disclosed positions from NVIDIA (NVDA 225.01, -0.15, -0.07%) and Advanced Micro Devices (AMD 506.00, -8.39, -1.63%).

Weakness remained broad elsewhere. The communication services sector (-1.5%) was among the worst performers as Meta Platforms (META 568.97, -20.88, -3.54%) remained under pressure ahead of opening arguments Tuesday in a child social-media addiction case.

The consumer staples sector (-1.5%) matched that loss amid weakness in alcoholic beverage names. The consumer discretionary (-1.0%) and financials (-1.0%) sectors also lagged. Apparel and homebuilder stocks weighed on consumer discretionary, with NIKE (NKE 39.09, -1.64, -4.03%) falling to its lowest level since late 2014. Homebuilders faced an additional headwind from elevated longer-term Treasury yields after the 30-year yield reached a fresh 19-year high during the session.

[Note: % changes above may differ from chart as chart uses futures.]

After hitting a two standard deviation underperformance vs the S&P 500, the worst since 2020, the financials sector has staged a sharp comeback although not yet even to the 30-year average. “We remain overweight,” said Keith Lerner, investment chief at Truist Wealth. “And we still think there’s ultimately more upside in the group.” Gerard Cassidy, head of U.S. bank equity strategy at RBC Capital Markets, expects banks could continue to outpace the broader market, possibly rising another 10% to 20% over the next 12 months. Within banks, he thinks that regional banks have the strongest upward trajectory. Insurance companies, meanwhile, have done well thanks to higher rates, and asset managers as a group are hitting all-time highs up nearly 6% this week have gotten a boost recently up 20% since the end of June.

$XLF Financials SPDR ETF was up a 7th straight week last week, the longest streak since April 2010 per Goldman.

Goldman's prime desk saw hedge funds buying US equities “every day [last] week and at the second fastest pace in the past year, driven by long buys in Single Stocks and to a lesser extent short covers.” That said “trading volumes and institutional activity remain anemic entering the heart of August.”

After $SNDK SanDisk's Analyst Day suggested “the [memory] industry may be entering a more durable phase” as it committed to 15% annual sales growth and >80% gross margins through FY2030, BofA asks what that would mean for $MU Micron. “Applying SNDK-like assumptions (Exhibit ) to MU would yield $200-$250 FY30 EPS, implying a 30%+ FY26-FY30 EPS CAGR, versus consensus expectations of roughly $160-$170 peak EPS over the next one to two years. Even at Micron's historical 10x P/E, this scenario implies substantial upside potential.” They also point out that “a second underappreciated lever is capital returns. Once CHIPS Act restrictions expire on Dec. 9, 2026, we expect Micron to increasingly align with its commitment to return 100% of FCF to shareholders. We model $80 bn+ of TTM FCF starting around the CHIPS Act anniversary date, that could enable ~10% of market cap to conceptually be repurchased annually.” “The primary risk to our thesis is not memory demand, but capital deployment.... The key question is whether that cash is returned to shareholders or redirected toward larger ecosystem investments similar to NVIDIA's frontier lab and neocloud strategy.”

$NKE Nike falls to lowest level since September 2015. It is down around 40% this year.

And as you might expect with that kind of sector breadth while the number of large SPX winners (up over 3%) edged back to 16 from 18 Friday but ~60 Thursday, large losers (down over 3%) jumped to ~60 from 18 (and 11, 17 and 14 the prior three days).

[chart from finviz.com]

The entire Mag-7 plus AVGO was lower today, although just MSFT and META down more than 1%. Micron in contrast up 4%.

While it was only the second down session for the NYSE Composite index this month…

… new 52-week highs minus lows was the least since March.

After-hours movers

None today, but here were the mid-day movers:

Intuitive Machines — Shares of the maker of robotic spacecraft and landers designed to fly to the moon jumped another 9%, rising for a fifth day. Houston- based Intuitive said it received an “authorization to proceed” from an unnamed customer to start work on a $600 million, multisatellite communications infrastructure program. On Friday, Intuitive gained 8% after disclosing its latest order backlog.

EyePoint Pharmaceuticals — Shares of the pharmaceutical company plummeted about 70%. Duravyu, the company’s treatment for wet age-related macular degeneration, did not achieve its primary goal in a Phase 3 trial.

JetBlue Airways — The airline’s stock dropped 6%, on pace for its seventh decline in nine sessions. The stock has struggled over the past six months, losing 13%. Seaport Research Partners lowered its rating on JetBlue to neutral from buy.

Onto Innovation — The semiconductor process control company’s shares climbed 5% after Goldman Sachs initiated coverage of the stock with a buy rating, according to FactSet. Shares are higher by more than 120% this year.

Workday — The maker of human resources software saw shares fall 4%. Deutsche Bank downgraded Workday to hold from buy, according to FactSet. The move came after Workday soared 40% since July 24. Last Thursday, the stock saw its largest one-day gain in 10 years after Reuters reported that private equity firm Silver Lake was in talks to buy the company.

Alibaba — Shares were higher by almost 1% after Reuters reported Alibaba is set to sell its game development business. Lingxi Games is expected to be sold for more than $2 billion to private equity firm Trustar Capital, Reuters said, citing a person familiar with the matter.

Memory chip stocks — Several stocks were higher after U.S. Commerce Secretary Howard Lutnick told the Wall Street Journal in an interview that the Trump administration opposes Apple buying Chinese memory chips. Shares of Sandisk jumped 10%, Western Digital shares added 5%, Micron Technology shares tacked on 6% and Seagate Technology’s stock was higher by 2%.

Intel — Shares were up almost 4% after CEO Lip-Bu Tan bought more than 105,000 shares last week at $95 each, based on a late Friday Securities and Exchange Commission filing.

SoFi Technologies — The digital financial services company’s stock was fractionally higher after Piper Sandler initiated research coverage with an overweight rating. Analysts said SoFi’s current price represents an attractive entry point, with the company’s strong product portfolio filling a growing total addressable market.

Okta — Shares gave back early gains inspired by a Wells Fargo upgrade to overweight from equal-weight. Analysts at the bank said identity is increasingly becoming a spending priority by businesses, which is likely to boost Okta’s security offerings.

Other corporate news

Anthropic PBC is on track to generate annualized revenue of more than $65 billion based on its current performance, according to people familiar with the matter, up more than sevenfold from its pace at the end of last year.

Nvidia Corp. has agreed to spend as much as $105 billion to support a massive new data center campus in Ohio set to be leased by OpenAI, marking the latest tie-up between two dominant forces driving the AI boom.

L3Harris Technologies Inc. abruptly replaced Chief Executive Officer Christopher Kubasik following a conduct review, in a surprise shakeup atop one of the biggest US defense contractors as weapons makers come under pressure to boost output.

RTX Corp. won a contract valued at $23 billion from the US Navy to accelerate production of more than 7,000 Tomahawk cruise missiles, one of the US’s most potent offensive weapons, as stockpiles have come under strain in the five- month war on Iran.

Berkshire Hathaway Inc. increased its holdings in Delta Air Lines Inc. and Google parent Alphabet Inc. as Greg Abel began tapping into the company’s massive cash hoard.

Note on all charts the colored lines are moving averages (the average price over the lookback period (days on the daily charts, weeks on the weekly charts)): 20 = green 50 = purple 100 = blue 200 = brown

Exception is monthly charts where blue is 10-month moving average and brown is 20-month moving average.

MACD = Moving average convergence/divergence line, a measure of momentum that compares longer term and shorter term momentum to gauge if a move is strengthening or weakening. This is probably my favorite individual indicator (it’s also the favorite of Katie Stockton, a very fine technician).

RSI = Relative Strength Index (basically what it sounds like) = measures the strength of the move comparing gains to losses over the given lookback window (I use the standard 14 periods).

Turning to the charts, the SPX eased back further from its all-time high, but remains well above support levels.

Nasdaq similar to the SPX except hasn’t yet gotten to its all-time high (I still think a test seems likely).

The Russell 2000 (RUT) eases back from Friday’s all-time high.

While the equal-weighted SPX also edges back after just missing an ATH Friday.

Yields rose across the curve again Monday with another steepener (more movement on the longer end):

Two-year Treasury yields edged up a basis point to 4.18%. They remain 25 basis points below the peak close July 23rd, which was the highest since February of last year.

They are ~52 basis points above the Effective Fed Funds rate (red line), continuing to call for rate hikes.

Jim Bullard on a Fed rate hike

With the economy on solid footing but inflation still high, now would be a good time for the Federal Reserve to raise interest rates, former St. Louis Fed President Jim Bullard said Monday. “Why not do it now? You don’t want to wait till the economy’s suffering and then have to make an agonizing decision,” the dean of the Purdue University business school said on CNBC’s “Squawk Box.” So it would be a good time, I think, for the committee to signal that they want to get inflation down to 2% a little more rapidly than what markets are projecting now. Traders have sharply pulled back their expectations for Fed tightening. Futures pricing Monday afternoon pointed to just a 32.6% probability of a cut at the Sept. 15-16 meeting, after just a few weeks ago assigning strong odds to a move, according to the CME Group’s FedWatch. Market pricing now points to a December hike. However, Bullard thinks the market might also take that as a sign of wavering commitment to the inflation target, and “that’s really a problem for the” Federal Open Market Committee, which does not have a policy meeting scheduled in August. — Jeff Cox

Goldman: Although 9 of the 18 FOMC participants that submitted dots at the June meeting projected hikes in 2026, we estimated at the time that only 4-5 of the 12 voting FOMC members fell into this group. Since then, the hawks have become louder, with three outright dissents at the July meeting. But after two months of materially softer jobs and inflation data, it’s hard to see any of the doves shifting toward hikes. Therefore, a hike at the September meeting has become very unlikely, barring a dramatic shift in the tone of the August data due in early September (which we don’t expect). And under our baseline economic forecasts, the inflation news is more likely to improve further than to deteriorate anew as the year progresses. Hence, we still think market pricing for the funds rate is too hawkish.

Goldman: Under Chair Powell, FX volatility shifted from the FOMC statement to the press conference. Compared with the Bernanke and Yellen eras, post-FOMC press conferences under Powell generated higher intraday FX volatility (Exhibit 1), while the statement elicited a more muted market response (Exhibit 2).

10-year yields up three basis points to 4.72% a new post-Jan 2025 closing high.

The rise in bond yields comes even as the Citi economic surprise index is falling. When we saw this in 2024, bond yields would eventually peak and move lower.

30-year yields up five basis points to 5.31%, the highest level since 2007.

The 30-year Treasury auction this week garnered quite a bit of attention with the highest clearing yield since August 2001, but something else notable about that date is it was the last auction of 30-years until February 2006. Why? Due to a run of federal budget surpluses, the worry was there wouldn't be enough Treasury supply to support the market. Now as BBG notes the 30-year may be de-emphasized due to too much Treasury supply driving up interest costs. “For the fiscal year to date, the tally for the [US'] interest expense is $1.17 trillion — a 15% increase, thanks in part to higher yields on Treasuries.” In that regard, tucked into the latest refunding announcement Treasury “made an unanticipated tweak.... Instead of saying they are continuing to evaluate potential future 'increases' in coupon and floating-rate note sales, as was the case previously, they said they are mulling potential 'changes.'” “Bond investors saw that as raising the possibility that officials will trim sales of the long bonds most under pressure.”

VIX bounced from the lows of the year to 15.2.

The indicator remains at the bottom of its “normal” range post-GFC, consistent with ~0.95% average daily moves in the SPX over the next 30 days.

In addition to the drop in expected volatility, BBG reports that: There’s been a sharp shift in the balance between demand for downside and upside convexity resulting in skew exhibiting a dynamic requiring the fast monetization of downside protection and renewed pursuit of the rally through calls. “S&P 500 skew has collapsed in a market regime that remains dominated by upside risk,” Bloomberg Intelligence chief global derivatives strategist Tanvir Sandhu said.

The VVIX (VIX of the VIX) also moved higher to 93.9.

The current level is consistent with “moderate” daily moves in the VIX over the next 30 days (historically, normal is 80-100, but we’ve been above 90 most of the time since July ‘24). Above 100 is the level flagged by Charlie McElligott as indicating higher stress.

But with the weekend dropping, the 1-day VIX eased to 8.3, the lowest close since Jan 6th, consistent with a move of just 0.52% in the SPX next session.

WTI up +3.2% to the highest close of the month.

The DXY dollar index (which is fixed weighted with a heavy (57%) weighting vs the euro) fell to a new 2-month low.

The daily MACD as noted three weeks ago flipped to quite negative while the RSI was under 40 (and is again). As I said then, “clearly consolidating, but too early to call it a downtrend. But if it resumes its decline, that might be enough for me.” Going to give it the benefit of the 200-DMA but under that and it seems the uptrend is broken.

BBG's dollar index down to the weakest since May 15th.

Gold futures (/GC) up but once again stayed under the key 200-DMA after three failed tests last week. As noted last Thursday “still has a good technical setup with positive daily MACD and RSI.”

US copper futures (/HG) gave up early gains to finish little changed. And the “supportive technicals” I’ve been harping on for the last month are becoming less so.

US natural gas futures (/NG) fell back towards the July lows. The daily MACD as noted a week ago has flipped to more bullish but the RSI remains below 50. Also has layers and layers of resistance above.

The U.S. Energy Information Administration expects natural gas inventories will increase to 3,985 billion cubic feet (Bcf) in October, the most gas in inventories ahead of the winter heating season since 2016.

Bitcoin futures continue to trade in their range over the past month+, also at the same levels they were at in early June. Daily technicals remain relatively neutral. I would still be a buyer if they saw a strong move above $67,500.

Misc

MS (Wilson): As the business cycle matures and post-recession operating leverage moderates, we believe leadership should rotate from low quality toward companies with more stable earnings, strong margins and operational efficiency. With high quality representing 42% of the S&P versus 28% for low quality—and median stock earnings growth accelerating to 14% as revisions breadth improves—the setup should support greater index resilience, broader participation and 8,000 on the S&P by year-end, in our view (8,300 12-months out).

Yardeni: We are sticking with our 10,000 target by the end of the decade, though we might raise it. Our Roaring 2020s scenario is delivering even better S&P 500 earnings than we expected. FEMO (fabulous earnings momentum) is driving the stock market higher! The S&P 500 is up 141.0% so far this decade, making it the sixth-best decade since the Roaring 1920s already (chart). If it rises to 10,000 by the end of the decade, it will be up 209.5%, the fifth-best decade. In other words, roaring decades are not exceptional for the stock market. (The S&P 500 fell during the 1930s and 2000s, and edged up slightly during the 1940s, 1960s, and 2000s.) To reach 10,000 by the end of the decade requires an additional 28.5% (or 2,201 points) gain in the S&P 500. That's roughly 7.5%-8.0% annualized price growth over the remaining 3.4 years of the decade.

Yardeni: If the S&P 500 hits [our target of] 8,400 by the end of this year, that would make 2026 the fourth consecutive year of 15% or more annual gains (chart). The only previous streak of five consecutive gains occurred during the second half of the 1990s.

MarketWatch: Jefferies strategists say the setup for smaller stocks headed into the rest of the year looks encouraging. The Russell 2000 is up 23% in 2026 compared with a 13% gain for the S&P 500. DeSanctis told clients on Thursday he and his team laid out several reasons why smaller companies are in favor headed into the rest of the year. Interest rates that are higher for longer for the right reasons are a boost for small-cap stocks, they said. “High-yield spreads have stayed very tight, capital markets are wide open for financing, and balance sheets are still in very good.” The Federal Reserve hiking rates isn't always a “death knell” for small caps, and history shows the segment has averaged a gain of over 10% six months prior to any hike. The new Russell 2000 became cheaper post-rebalancing. U.S. growth should pick up in the second half of this year, which means a stronger performance for those stocks. Finally “M&A is going very strong and accelerating, very good for small.”

If you follow markets you've probably heard of Hindenburg Omen signal as they are not particularly uncommon. But what are they? For a Hindenburg Omen to trigger, certain criteria must be met on the same trading day: Market Uptrend: The broader index (traditionally the NYSE Composite Index) must be above its 50-day moving average. Breadth Divergence: Both new 52-week highs and new 52-week lows must simultaneously exceed a specific percentage (usually 2.8%) of total issues. Negative Momentum: The McClellan Oscillator (a market breadth indicator that measures the acceleration or deceleration of money moving into and out of the stock market) must be negative. The idea is that despite the market trending higher, there is a severe lack of harmony or consensus among stocks, signaling that a seemingly healthy market may be actually fracturing beneath the surface. It was a more useful indicator in the past but according to MarketWatch has become less so the last 15 years. That said they find on average it sees three month returns of -0.5% and one-year returns of 7.4% well below the all-periods averages. But the “hit rates” (the % of times stocks are actually lower) are just 37% and 19% respectively. But that said, @McClellanOsc and @jasongoepfert find clusters like what we have seen recently are better indicators. Jason finds that when 11 or more Omens occur during a three-month period. “An individual signal is not all that informative, but when they fire consistently over weeks or even months, the false-positive rate tends to go down,” Goepfert said. Of course, that also means a smaller sample size — but pick your poison. The most recent Hindenburg Omen cluster of 11 or more Omens was completed on June 29th (47 days ago). Since then, the S&P 500 has risen 4.8%, FactSet data showed. Remains to be seen where we are at the 3-month and 1-year periods.

BofA's Hartnett says to “short AI bonds” and equities depend on politics: “>$1tn capex and negative net cash flow = big issuance; optimal bubble strategy remains long “hubris” (AI) & long “humiliation” (out of-favor, distressed cyclical plays lifted by final bubble surge in nominal GDP, e.g. EM in ’99 internet mania, oil in ’07/’08 subprime/China bubble, we think most likely consumer, China next few quarters; and 'play politics...Texas Governor race between GOP incumbent Abbott (48%) & DEM challenger Hinojosa (44%) referendum on affordability vs. AI data centers (335 in TX, 247 proposals for new ones); announcement of temporary pause on data center expansion by business-friendly Abbott reflects electoral unease re affordability and energy grid risks; should Trump hold Senate & Abbott hold Texas, expect stocks (esp. AI) to rip into bubbly ’27; but should DEMs take Senate/TX Governor mansion on Nov 3rd, then big slump in stocks (>10%), US dollar, and bond yields into year-end.’”

Torsten Slok also calls out Texas: The Data Center Boom Is a Texas Story. Cleanview data shows that Texas alone accounts for roughly 100 GW of planned data center capacity, more than the next two states, Virginia and Utah, combined, see chart. Virginia, by contrast, still leads on operating capacity at 17 GW.

ZeroHedge: Memory pricing isn't rolling over yet. Jefferies sees another 40–50% QoQ increase in Q3 and 30–40% in Q4, while JPM still sees DRAM ASP rising through 2028. Supply can't catch up quickly either. JPM estimates new fabs take 2–2.5 years to come online, limiting the industry's ability to add enough capacity to balance the market. Both point toward the same thing: the meaningful pricing turn looks more like a 2028 story than a 2026 story. The market may be trading the memory downcycle too early.

The off-balance sheet numbers keep growing. A WSJ analysis of nine top tech companies* had some $3 trillion of off-balance-sheet commitments mostly related to AI, over and above the $600 billion in capex reported. “As these off-balance sheet commitments become more frequent, larger, and more complex, it is becoming increasingly difficult for investors to assess companies’ total potential leverage,” Morgan Stanley accounting analysts wrote in April. *the nine companies are Alphabet, Meta Platforms, Oracle, Nvidia, Microsoft, Amazon, Broadcom, SpaceX and Advanced Micro Devices.

BofA notes that hyperscalers' 2026 capex estimates have been revised up nearly 50% since the beginning of the year. Will we see a repeat in 2027? BofA says the AI capex arms race is still accelerating. Consensus capex for the big hyperscalers keeps rising, and 2026 estimates are more than 40% higher than at the start of the year. 2026 consensus capex estimates for the big 5 hyperscalers have been revised >40% higher since the start of the year. Hyperscaler capex continues to outpace the rest of the market, driving total S&P 500 capex to a record $1.8T in 2026E.

Citi on SOX and Kospi bubble criteria

Citi’s head of macro and asset allocation reckons the U.S. equity market is in a bubble, but that doesn’t concern him overly. Because, as Dirk Willer puts it in his latest global macro strategy note published Thursday, “we remain bullish as these conditions can last a long time.” For the Philadelphia Semiconductor Index and the semiconductor-heavy Kospi index, however, the bubble criterion has been met. According to well-known investor Jeremy Grantham, that criterion is achieved when an asset rises more than two standard deviations against the trend in real terms. For the SOX, this was triggered in April and it remains in a bubble. The Korean benchmark entered a bubble, but exited that status in July, according to Willer. Having been advocates of Korean equities before, Citi recommended booking profits in June and are “currently on the sidelines.” Bubble focus shifts from S&P 500 to SOX and Kospi, says Citi. By Jules Rimmer.

From @C_Barraud's Top 10 charts of the week is a series of embedded posts from @zerohedge and @Silicon_Data regarding the interesting phenomenon of prices for expensive “closed” (fully proprietary) AI models (such as ChatGPT and Claude) falling due to increasing competition while those of open models (like DeepSeek's) climb to achieve sustainable pricing levels. Still though there remains an enormous gap with DeepSeek's V4-Pro model priced at $3.96 for 1 million output tokens during peak hours, up from $0.87 for 1 million tokens previously, while Anthropic PBC's state-of-the-art Fable 5 service charges $50. That keeps alive a debate as to whether DeepSeek is creating a “death zone” where costlier or less capable models would be obviated. For now though Anthropic at least appears to be navigating things just fine reporting a 14x jump in revenues from a year ago at $11.5 billion in its latest completed quarter, compared to $787 million in the corresponding period in 2025, and $4.73 billion in the first quarter of this year. Importantly, the company reported positive adjusted operating income in the quarter.

BofA on US M&A activity

BofA (Hall): After last year’s surge in deals (best year since 2000 by number of deals), US M&A activity has remained strong this year, with nearly 125 deals in the first half. If the pace continues in the second half, this would be the second-best year since 2015 (following 2025) for number of deals. Russell 2000 stocks and non-index stocks continue to dominate deals based on the target company (~50% and ~30% of the YTD total, respectively), but mid-cap deals have picked up (17% of deals, highest since 2020), and aggregate deal value, if annualized, is on track for its highest level since 2015. Mega cap deals remain scarce (1% of total).

BofA says M&A remains strong — and mostly a smaller-cap story. US M&A deals by target size segment. 1H26 saw 122 deals; annualized pace of 244 would make 2026 the second-strongest year since 2015. 2026H1 mix: 82% Small cap & non-index, 17% Mid-cap, ~1% Top 200. Mega-cap deals remain a tiny sliver of activity.

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Goldman: Very few parts of the equity market have demonstrated a recent relationship with midterm election odds. Most parts of the equity market have demonstrated little to no correlation with shifting election probabilities in recent months, with the results similar across varying time horizons and controlling for varying sets of other variables like interest rates and the price of oil. The most notable exception is the Consumer Discretionary sector, which has traded with a negative recent correlation to Republican odds, although the relationship has not been extremely strong.

Median CPI fell to 2.69% y/y in July and trimmed mean (8% off the top and bottom) to 2.60%, the least since August and April of 2021 respectively.

BofA on core PCE distortions

This was another saved post I forgot to send with BoA adjusting for what they call current “distortions” to PCE which they say still leads to “underlying core inflation” running at around 2.5%, which leads to their call for 75bps of hikes this year: We see four upward distortions to core PCE: tariffs excluding AI added about 40bp to the core in June; airfares and postage and delivery fees surged because of the Iran conflict. This added about 20bp to the core; third and fourth, the BEA has said it will be addressing methodological issues with portfolio management (where inflation is currently imputed as a function of stock prices) and computer software accessories (where weight differences create a bigger discrepancy vs. the CPI) in its annual revisions in September. We think the revisions will result in a 20bp mark-down in y/y core PCE inflation. Putting everything together, we’re left with 80bp of one-offs and underlying inflation of around 2.5% What about housing disinflation? In our view, it has largely run its course. It will probably take less than 10bp off core PCE over the next year. This brings us close to the Fed’s median year-end 2027 core PCE projection in the June SEP (2.5%). A policy rate of 3.6% with 2.5% inflation would imply that the real policy rate is close to the Fed’s median longer-run projection (1.1%). But with a 50bp+ inflation overshoot and a trend-like labor market, policy should be meaningfully restrictive, not roughly neutral. More broadly, demand drivers of inflation seem contained, unlike in 2022. That’s why we think the Fed only needs to do a mid-cycle adjustment of 75bp. If the labor market were heating up, we’d probably be looking at a full-blown hiking cycle.

BofA estimates underlying core PCE inflation is still 2.5%. Removing 80bp of tariffs, Iran effects and data distortions still leaves inflation above the Fed's target.

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How we measure inflation matters quite a bit at the moment. The trimmed mean PCE measure rose just 2.2% over the last year, while the core PCE measure rose 3.3% (Exhibit 1). Whether one takes the data at face value or removes an estimate of the effects of tariffs, the oil spike and other effects of the war with Iran, and statistical mismeasurement makes a large difference too. The best way to measure inflation depends on the goal. A price index might aim to capture the prices paid by consumers, like the CPI. Or it might be designed to serve as a deflator for everything treated as consumption in the GDP statistics, like the PCE index. Different approaches can result in differences in scope and category weights (Exhibit 3).

@profplum99 from his weekend Substack post: If you’d like to understand the challenges of active management, I ask you to ponder this chart, which separates “ex-passive” institutional ownership into high- and low-ownership cohorts. You know what’s worse than a crowded trade? A crowded trade where the crowd is leaving.

FT reports that “loans placed on non-accrual status by the 20 largest publicly traded business development companies (BDCs) — listed funds that invest in private credit loans — climbed to a median 2.8 per cent of their cost in the second quarter, up from 2 per cent at the end of March,” and the highest since early 2017 (chart). Separately, analysts at Fitch Ratings last week warned that private credit defaults had hit a new record in July. Meanwhile, data from PitchBook LCD showed the biggest publicly listed BDCs shrank again in the second quarter as funds were hit with impairments and as sales and repayments of loans outpaced commitments on new deals (chart). But “many executives across the $2T asset class believe that the alarmism surrounding private credit’s troubles is overblown, with several blaming the media — including the FT — for the outflows weighing on the asset class. On earnings call after earnings call, senior leaders said most of the loans they underwrote continued to perform well and that the earnings of the average business they lent to were growing.”

NAHB Housing Market Index

The NAHB home builder Housing Market Index inched up +1pt in August to 35 from the joint-least since September. While above estimates for a 33 reading, it remains well below the 50 dividing line between poor/good conditions for a 28th consecutive month. In addition the index has been below 40 for a 16th consecutive month, the longest such stretch since 2012. The current sales component rose +2pts while future sales expectations and buyer traffic held steady, all also well below 50. The concession picture was little changed: 35% of builders cut prices in August, down from 37% in July but unchanged from June (the 16th straight month at least 30% have done so per the release). The average price reduction held at 6%, and the use of sales incentives was unchanged at 63%, marking the 17th consecutive month this share has reached 60% or higher.

Wrap-up

As I wrote Sunday

From last Sunday

will the now “on again” AI trade continue? The evidence is there, with momentum building, expected earnings continuing to ratchet higher, and positioning not yet “extreme” according to DB.

And the overall setup remains favorable as well, with systematics biased to buy according to BofA, discretionary and hedge fund positioning light according to DB and Goldman, buybacks almost back to full strength, retail re-engaging, the economy remaining resilient even if pay growth continues to ease — something we’ll need to keep an eye on — and earnings growth spectacular.

Sentiment is not really a tailwind but not yet a headwind — “it takes bulls to have a bull market” — seasonality is not great, and rates are pushing up toward levels that may cause some indigestion, but none of those are yet at levels that I would consider “red flags.”

And as discussed at the top, it appears from the most recent indications that President Trump has no appetite for dialing things up militarily at this point, which means it’s likely things will drag on with little change through the midterms unless or until Iran decides it wants to reopen the Strait

And for the most part that all remains the case for the upcoming week. We even get seasonality turning a bit more favorable.

And with the seemingly never ending catalysts this summer, we didn’t get to a more typical low volume summer drift until the end of last week. Perhaps we will see that continue for this week given the dearth of major catalysts (as noted Friday, Bank of America designed their forward looking US Economic report to cover all the way through the end of the month if that gives you an idea).

I said two Sundays ago that I was becoming more constructive, and that remains the case heading into the coming week.

And while we did get another “low volume drift” (volumes were only slightly above Friday’s, today it was to the downside despite the AI-trade remaining “on” which helped hold up the indices. Not much else other than Energy though worked today, which is not surprising with longer-duration yields hitting new highs for the year.

As I said a couple of weeks ago, until that stopped it will keep pressure on the non-AI trade. I’m not sure where that point is, but I think we’re closer than farther. That said we still have some room before the top of my current ranges as discussed in the Week Ahead.

With the high gamma though I don’t expect a big selloff but we could very well continue to see indices drift lower (or higher) as bond yields head higher (or lower).

The Day Ahead

As noted in the Week Ahead, it’s a relatively light week for US economic data, but Tuesday is definitely the heaviest day with July industrial production (our most comprehensive look at the manufacturing sector), housing starts/permits, import prices, and pending existing home sales plus the ADP weekly report.

In terms of Fed speakers as noted none on the schedule for this week.

No US Treasury auctions Tuesday.

In terms of SPX Q2 earnings we’re very much in the windup phase (at least until the end of the month with Nvidia) with just 3 SPX components reporting Tuesday. We get one $100B reporting though in HD.

Ex-US highlights include UK wage and unemployment data, EU and Germany ZEW expectations, and Canada housing starts.

The Day Ahead. Tue • Aug 18, 2026. A light week, but Tuesday is busy. A morning run of housing, factory and price data — starts and permits, industrial production, import prices and pending home sales — plus ADP’s weekly jobs pulse.

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Tuesday August 18 data and earnings list

Tuesday August 18. Data: US August New York Fed services business activity, July industrial production, import price index, export price index, housing starts, building permits, capacity utilisation, pending home sales; UK June average weekly earnings, unemployment rate, July jobless claims change; Germany August Zew survey; Eurozone August Zew survey; Canada July existing home sales, housing starts. Central banks: ECB's Lane speaks. Earnings: Home Depot, Baidu.

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