Markets Update - 8/20/26

Quick Summary

• US equity indices opened lower Thursday giving back all of Wednesday’s gains as Treasury yields rebounded following their losses Wednesday, which came after the US Treasury announced an increase in its buybacks of longer maturity bonds as discussed in yesterday’s update. Traders also apprehensively awaited trade restrictions to be levied at Iranian trading partners presumably including China as discussed this morning.
• The rebound in yields was cooled only slightly after Treasury Secretary Scott Bessent told CNBC on Thursday that the accelerated buyback of government debt could be higher than the announced $4 billion, and the White House would be “announcing probably at the end of this week, beginning of next week, an increased focus on fiscal consolidation.” There is a “very good chance” the US has already seen “peak deficits,” Bessent said.
• Oil added another macro headwind as tensions with Iran remained high. As discussed in the morning update President Trump threatened “Economic Warfare and Isolation on an unprecedented scale” in an overnight social media post, while Bessent said the US would lay out additional sanctions and isolation measures Monday. WTI rose nearly 3%.
• Equity indices never made much of an attempt at a rally, instead grinding steadily lower throughout the session. At day’s end, the Russell 2000 and Dow Jones Industrial Average led declines at -1.3%, while the Nasdaq Composite fell 1.0% and the S&P 500 lost 0.9%.
• Breadth deteriorated sharply. Just two S&P 500 sectors finished higher, Energy and Real Estate, and neither gained more than 0.4%. The other nine sectors declined, with five down roughly 1% or more.
• Retail was a major drag, with Walmart sinking the most since May 2022 after disappointing sales, while Advance Auto Parts plunged after earnings and weakness spread across other consumer and auto-parts names. Higher rates and oil also weighed on homebuilders, cruise lines, apparel, airlines, and defense stocks (more details in subscriber section).
• Technology held up better than the broader market, with the sector down just -0.4%, while the PHLX Semiconductor Index gained +0.5% after two sharp down sessions. That semiconductor resilience, along with strength in crypto-linked stocks as bitcoin topped $72,000, provided a few pockets of support, not enough though to offset broader selling.
• Attention turns to Friday’s options expiration which will keep some traders around but otherwise should be a light day with just flash PMIs on the US macro calendar.

US equity indices opened lower as Treasury yields rebounded and never made much attempt at a rally, instead slowly grinding lower to end with solid losses led by the RUT & DJIA -1.3%.

Nasdaq -1%, SPX -0.9%.

BBG on this. While yields have retraced much of Wednesday’s decline, Bessent played down Thursday’s market moves, saying “anything that happens within a 24-hour period is noise.”

As @C_Barraud notes he says the expanded buyback operations “could be more than the $4 billion” size currently planned to start next month, and that “we are announcing probably at the end of this week, beginning of next week, an increased focus on fiscal consolidation.” There is a “very good chance” the US has already seen a peak in the fiscal deficit, Bessent said.

“All we’re trying to do is get people to focus on the fundamentals and not trade the headlines during a quiet period in a thin market,” Bessent said.

“We have a big toolkit, we’ll see. And part of it is signaling here to show that we believe that the yields don’t reflect the underlying fundamentals.”

“The underlying economy, I think, is very strong, and the only inflationary impulses that we’re seeing are coming from energy, which is temporary,” Bessent said.

Market commentary

US equities

“People are waiting for either new information or the market signaling something,” Secker said. “When you see the Korean market going up 5% and then down 5% the next day, particularly for the hedge fund community that level of volatility is not encouraging confidence.”

“The announcement from Treasury Secretary Bessent yesterday seems to be creating less confidence in investors’ minds, not more confidence,” said Matt Maley at Miller Tabak. “This is not great given that we’re heading into a seasonal period that is frequently rough for the markets.”

Bonds

Michael Schumacher, former head of macro at Wells Fargo, doesn’t think bond market respite will last. “I’m still negative. I think long-term rates go up for a few reasons. In the U.S. case in particular, there’s just a huge budget deficit. Not much sign that’s going to improve. On top of that, you’ve got defense spending going up,” he told CNBC in an interview. “I think that was the case really before the conflict in Iran, and that’s intensified.”

“It’s going to be a circuit breaker for this long-end selloff globally,” said Andrew Lilley, chief rates strategist at Barrenjoey Markets Pty in Sydney. But “it’s not enough on its own to stop the yield rise.”

There’s a “synchronicity of forces arguing for higher yields, steeper yield curves” with the largest developed markets all facing fiscal pressures and stubborn inflation, said Andrew Canobi, a director of fixed income at Franklin Templeton. “I can’t see the longer end finding too much of a bid as long as those forces are prevailing.”

“If there’s a structural reason why bond yields are drifting higher, a bit of short-term intervention buys you a little bit of time, but doesn’t necessarily change the longer-term trajectory,” said Graham Secker, equity strategy head at Pictet Wealth Management.

“Fed Chairman Warsh has argued that rising long yields have been doing some of the Fed’s tightening for it. If the Treasury now suppresses those yields and loosens financial conditions, the Fed may have to compensate through higher policy rates. If they don’t, doubts over inflation fighting credibility may push up long-end yields anyway.” — Skylar Montgomery Koning, macro strategist.

The Treasury intervention showed policymakers are uncomfortable with the pace of the rise in yields, but it does not fundamentally alter the outlook for rates, according to Ulrike Hoffmann-Burchardi at UBS Chief Investment Office. “Our base case remains that the Fed is unlikely to raise rates this year if inflation continues to moderate, although policymakers have retained the option to tighten should price pressures prove more persistent than expected,” she added.

The 10-year Treasury yield is “right on the cusp” of breaking out of its trading range, which appears to be worrying investors in the U.S. stock market, said Adam Turnquist, chief technical strategist for LPL Financial, in a phone interview Thursday. There’s a risk that selling pressure in Treasurys could “spill over” into the stock market amid worries over rising borrowing costs for the U.S. government, companies and consumers, according to Turnquist. A higher 10-year Treasury yield also hurts stock valuations, he said.

In today’s Markets Update

• A deeper look at Thursday’s stock and sector breakdown, including the poor sector breadth and widespread pressures outside of the AI trade.
• A closer look at earnings-related reactions from Walmart, Advance Auto Parts, Deere, and Nordson, and notable midday movers from CNBC and BBG.
• Updated technical charts across the SPX, Nasdaq, Russell 2000, and equal-weighted SPX, including MACD sell signals and Frank Cappelleri on their recent track record.
• A review of market breadth and participation, including the drop in large SPX winners and the latest heatmap.
• A look at the rates and Fed backdrop, including the rebound in Treasury yields, Mary Daly’s comments, ING on the Fed minutes, long-end Treasury positioning, Treasury buyback/fiscal questions, and the broader competition-for-capital theme.
• A look at volatility and market structure, including VIX, VVIX, and 1-day VIX.
• A review of cross-asset trends, including WTI crude, the dollar, gold and gold miners, copper, natural gas, and bitcoin.
• A look at current macro and sentiment posts, including AI spending trends, the Architecture Billings Index, and AAII investor sentiment.
• A wrap-up on the faded Treasury-yield relief rally, broad risk-asset weakness, AI-trade resilience, thin volumes, and the setup into options expiration.
• A look ahead to Friday’s calendar, including US economic data, Fed speakers, Treasury auctions, SPX earnings, and ex-US highlights.

Stock and sector breakdown

Along with the weaker index performance SPX sector breadth fell sharply Thursday with just two of 11 sectors higher (Energy and RE) but neither more than +0.4% while of the nine sectors lower five were down around 1% or more.

The combination of higher rates and oil prices weighed particularly heavily on the consumer discretionary sector (-1.8%). Cruise lines, homebuilders, and apparel stocks were among the laggards, with the iShares U.S. Home Construction ETF falling 2.5% as some of Wednesday’s rate relief reversed. Advance Auto (AAP 42.39, -13.79, -24.55%) plunged following its earnings report and weighed on other auto-parts stocks.

Retail weakness extended to the consumer staples sector (-1.9%), which finished with one of the day’s widest losses as Walmart (WMT 103.84, -10.46, -9.15%) sank following its earnings report, which featured a disappointing Q3 outlook.

Higher oil prices also contributed to weakness in the industrials sector (-1.2%), with airlines retreating as the jump in crude raised concerns about fuel costs. Defense stocks were another source of weakness as the U.S. emphasized economic measures against Iran, sending the iShares U.S. Aerospace & Defense ETF down 3.6%. Still, Deere (DE 620.94, +40.31, +6.94%) and Nordson (NDSN 334.70, +24.78, +8.00%) provided notable pockets of post-earnings strength within the sector.

Selling was also pronounced in the health care sector (-1.9%) after its strong two-day gain coming into the day. Moderna (MRNA 133.32, -41.06, -23.55%) gave back another portion of yesterday’s massive rally following the positive cancer-vaccine results, while Intuitive Surgical (ISRG 374.48, -23.24, -5.84%) was another notable laggard.

Technology stocks held up better. The information technology sector (-0.4%) posted one of the narrowest losses, while the PHLX Semiconductor Index gained 0.5% after two sessions of sharp declines. Memory stocks and several other chip names rebounded amid the pronounced swings that have characterized the group this week.

That semiconductor resilience did not extend to mega-cap growth stocks more broadly, however. The Vanguard Mega Cap Growth ETF fell 0.9%, adding pressure to the major averages as the session progressed.

By the close, the energy (+0.4%) and real estate (+0.2%) sectors were the only S&P 500 sectors to escape with gains.

Crypto-related stocks were also a bright spot, with Coinbase Global (COIN 172.35, +12.15, +7.58%) ranking among the S&P 500’s best performers as President Trump’s push for Congress to pass the CLARITY Act helped fuel a rally across crypto-linked stocks.

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

Walmart earnings

$WMT Walmart indicated down almost 6% (after being down 7% earlier) after a rare miss on same-store (stores open at least a year) sales which came in at +2.6%, the least in over six years, and less than the 3.5% increase Wall Street expected in part due to a 0.8% headwind in its health and wellness business as price caps on certain drugs took effect.

Still, the company raised its full-year guidance for sales and adjusted operating income helped by tariff refunds, which management vowed to put toward lowering prices. CFO John David Rainey told CNBC the company was eligible to receive roughly $2.9 billion in tariff refunds, and that it has not yet gotten back less than $100 million of the total. For the year, Walmart said it sees sales increasing by between 4% and 5%, above its previous outlook of between 3.5% and 4.5%.

For the third quarter, Walmart said it expects net sales to increase between 3% and 3.75% and adjusted earnings per share to be between 62 cents and 64 cents.

Rainey said the business remains strong and consumers are still spending despite inflationary pressures.

Companywide membership fee revenue rose 17%. Sam’s Club U.S. net sales reached $25.7 billion, up 8.8%. Grocery saw mid-single-digit growth, while health and wellness saw a low single-digit decline. General merchandise was up slightly.

$WMT Walmart now down 9.7%, its worst day since May ’22 when it lost 11.4%.

Deere earnings

$DE One positive from this morning’s earnings was Deere & Co raised the lower end of its annual profit outlook as it looks for a stabilization in farm incomes that will lead to a rebound for farm machinery next year.

“As we look ahead, we continue to believe 2026 will mark the bottom of the current ag equipment cycle,” Chief Executive Officer John May said in a Thursday statement. “Across our business, early order program trends, improving used-equipment inventories and increasing customer adoption of advanced technologies give us confidence that Deere is well positioned for long-term value creation.”

Grain prices have been climbing, with wheat recently hitting the highest levels since 2024 as heat waves and drought crimp yields and escalating attacks between Russia and Ukraine raise concerns about Black Sea exports. Should prices keep rising, farmers may have more to spend.

But currently things remain under pressure with sales in its key production and precision agriculture segment down 6% from a year earlier. The company sees net sales dropping 10% in that segment for the fiscal year, at the high end of its previous forecasted range. US tractor sales for the year through July are down 13% year-over-year, according to a report from the Association of Equipment Manufacturers.

Deere’s outlook comes after mixed signals from rival machinery makers. CNH Industrial NV earlier this month raised its annual outlook, saying the sector is primed for a rebound in 2027 as the current fleet ages and prompts growers to upgrade. AGCO Corp., however, trimmed its estimates.

While Purdue University’s monthly measure of farmer sentiment rose in July, some expect growers to continue delaying purchases until production costs and crop prices stabilize.

And along with the worse sector breadth, the number of large SPX winners (up over 3%) plummeted to 17 from ~90 Wednesday but in line with Tuesday’s 16, but interestingly large losers (down over 3%) edged down to ~45 from ~50 Wednesday, ~60 Tuesday.

After-hours movers

None today, here were the mid-day movers:

Walmart — Shares of the largest brick-and-mortar retailer in the nation tumbled 9%. Walmart’s second-quarter revenue topped estimates, but same-store sales grew 2.6%, short of the 3.5% expected by analysts polled by FactSet. Earnings per share guidance for the fiscal third quarter and full year also fell short of expectations.

Deere — Shares of the tractor maker jumped almost 9% after Deere fiscal third quarter trounced estimates. The Illinois-based company earned $5.10 per share on revenue of $11 billion, versus the LSEG consensus estimate of $4.70 per share and $10.73 billion. Deere also lifted the lower end of its net income guidance for the full year, to $4.75 billion to $5 billion, compared to the FactSet consensus estimate for $4.88 billion.

Webull — The online trading platform provider’s stock gained more than 4%. Second-quarter adjusted operating income totaled $62.6 million, above the $33.5 million analysts were estimating, according to FactSet. Revenue of $198.8 million also beat expectations of $183 million.

Crypto stocks — Crypto-related stocks moved higher, following the surge in bitcoin and ether on President Donald Trump’s push for Congress to pass crypto-friendly legislation. Shares of Coinbase, Strategy and Circle Internet each gained about 8%, while shares of Mara Holdings climbed 12% and shares of American Bitcoin added 7%.

Transocean — Shares rose 2% after the offshore drilling service contractor signed a $300 million, two-year contract for an ultra-deepwater drillship with ONGC of India, with options out to 2031.

Moderna — Shares of the biotechnology company that uses messenger RNA plunged 25% one day after soaring 177% on the back of promising late-stage trial results for a skin cancer vaccine. The trial showed the experimental vaccine, developed with Merck, in combination with Keytruda, met key goals in patients with high-risk or advanced melanoma whose detectable cancer had been completely removed through surgery.

Nordson — Shares rose about 7% after the maker of equipment used to apply coatings and adhesives raised full-year guidance. Nordson now sees adjusted earnings of $11.80 to $12 a share, up from an earlier forecast of $11.30 to $11.80 per share. The outlook surpassed a FactSet consensus call for $11.60 a share.

Advance Auto Parts — The auto parts provider’s stock slid 25% following mixed second-quarter results. Advance Auto Parts posted revenue of $2 billion, short of the $2.04 billion expected from analysts polled by LSEG, and a same-store sales decline of 0.5% against an estimated gain of 1.4%, based on consensus analyst forecasts, according to FactSet.

Coty — Shares dropped 9% after the cosmetics maker reported a larger quarterly loss than expected and called fiscal 2027 a “transition year.” Coty lost an adjusted 2 cents per share in its fiscal fourth quarter, double the 1 cent loss expected by analysts polled by LSEG.

Wolfspeed — The semiconductor components maker’s stock declined 15%. Quarterly revenue of $149.6 million fell short of FactSet’s $150 million consensus estimate.

NetEase — U.S.-listed shares of the Chinese tech company lost 5% after quarterly earnings missed analyst estimates.

CrowdStrike — The cybersecurity provider’s stock dropped 4% after Axios reported that chief technology officer Elia Zaitsev is leaving to start an AI-focused cyber venture fund called Cognition.

Other corporate news

Broadcom Inc. is in talks with a group of lenders to raise more than $60 billion in debt for an AI chip financing deal that will benefit Anthropic PBC and other companies, according to people with knowledge of the matter.

Anthropic PBC expects to match or beat the size of SpaceX’s record-setting initial public offering, according to people familiar with the matter.

Super Micro Computer Inc. completed an independent probe into the alleged smuggling of Nvidia Corp. chips into China, with the investigation team concluding the current senior management had no knowledge of the purported scheme.

Deere & Co. jumped after the tractor maker said it’s seeing a boost in orders for its machinery, raising hopes that the agriculture sector is poised for recovery.

Coty Inc. reported a drop in comparable sales and forecast a “transition” period in the current fiscal year as it works to turn around its business.

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 finally made it to its first support level in the 20-DMA.

In addition, the SPX along with the other three indices tracked daily have seen their MACD cross over to “sell longs” positioning.

But Frank Cappelleri notes that MACD crossovers more often than not have not been a reason to sell the past couple of years (on the SPX at least).

$SPX Looking back at all of the MACD Sell signals since the fall of 2024, the track record has been mixed.

The red lines on the accompanying chart highlight signals that correctly preceded meaningful weakness.

While the blue lines show the head fakes when the market simply continued higher.

The takeaway is pretty clear: There have been far more head fakes than reliable sell signals.

With another MACD seller signal potentially triggering soon, bears will get yet another chance...

Nasdaq similar to the SPX. Its daily RSI has also fallen under 50.

The Russell 2000 (RUT) actually fell through its 20-DMA to just above the 50-DMA. Also saw its RSI fall under 50.

The equal-weighted SPX the only one that hasn’t made it close to its 20-DMA yet, and RSI furthest above 50.

Treasury yields rebounded across the curve Thursday again led by the long end:

Two-year Treasury yields, which didn’t fall much on Wednesday, were up two basis points to 4.19%. They remain 24 basis points below the peak close July 23rd, which was the highest since February of last year.

They are ~53 basis points above the Effective Fed Funds rate (red line), continuing to call for rate hikes.

Mary Daly on Fed policy

In a BBG interview, San Francisco Fed President Daly (not a 2026 #FOMC voter), considered one of the Fed’s more dovish members, continues to advocate for holding rates steady, not convinced by the hawkish wing that action is necessary now to forestall potentially bigger moves down the line.

“I also hear a lot about, should we be making preemptive cuts — or hikes, rather? And I don’t see a lot of evidence that that’s an urgent problem to solve,” Daly said Thursday in an interview on Bloomberg Television.

“I was very supportive of the July hold and continue to look at the information that comes between now and the next meeting about whether any signs of that worrisome dynamic would be forming. I haven’t seen them yet,” Daly said. “The recent prints on both inflation and the labor market didn’t really change that picture for me.”

She also doesn’t see the selloff in Treasury bonds as indicating a Fed credibility issue: “There’s a lot of discussion about our credibility there. I don’t see our credibility at risk,” she said. She added they may be reflecting the heightened demand for artificial intelligence products and infrastructure.

She reiterated that she expects price shocks from tariffs, the oil-price surge and AI will prove temporary, allowing inflation to resume cooling amid slightly restrictive monetary policy. Daly, a labor economist, said she’s not seeing any signs that the labor market is adding to inflation.

ING on the Fed minutes

ING: For the Federal Reserve to deliver an interest rate hike, the jobs and inflation data needs to convince those that were saying “no hikes” to change their minds. That needs stronger jobs numbers and more elevated inflation, which we are not predicting. Hence, our view that the Fed will instead keep rates on hold well into 2027.

But the voting members lean more dovishly and we think they will remain on hold.

Despite the slightly hawkish tone, we must remember these minutes reflect views held before the latest round of poor jobs numbers, subdued inflation prints and disappointing retail sales/consumer confidence figures. Moreover, these minutes represent the broad views of the Fed and not everyone votes at the FOMC meetings.

The June Fed forecast update showed a 9-9 split within the committee on whether they felt they will need to raise interest rates this year or not. Chair Kevin Warsh did not submit a view, with the strong suspicion being that he would come down on the side opposed to hiking if he really had to.

Of the nine that think they will hike, we suspect only three are voting members this year - and they are already voting for a hike! The implication is that none of the other six predicting they will hike have a vote on the matter this year.

10-year yields up six basis points to 4.71%, fully recovering Wednesday’s drop, remaining in its range over the past three weeks.

30-year yields up six basis points, recovering about half of Wednesday’s ten basis point drop, to 5.25%.

I had included in the Week Ahead a note from BofA about CTA positioning in long maturity Treasuries which entered the week “near the largest since May 2021”.

So, we have an unexpected government market intervention pushing against a heavily shorted market at a traditionally low volume time (late August).

Sounds familiar but can’t quite put my finger on it...

BlackRock’s Wei Li: The Treasury buyback is “small and technical for now – and jury still out – but competition for capital is becoming the macro story.”

From @C_Barraud’s morning Brief is a BBG article on the potential “doom loop” of the US’ spiraling debt (which went from $30T to $40T in less than four years) as interest costs increased 15% y/y to $1.17T YTD. Click through for that and the other numerous posts.

I’ll leave it to others to debate the fiscal situation, but I’ll note that the rapid rise means we’re likely within a year of another (likely disruptive) debt ceiling debate.

“The government is getting closer now than ever to the statutory debt ceiling of $41.1 trillion. Hitting that marker is expected to trigger another in the years-long series of partisan showdowns in Washington to head off a potentially devastating US payments default.”

“The ceiling will be reached in mid-2027, Fitch Ratings estimates.”

VIX back up to 16.0.

The indicator remains at the bottom of its “normal” range post-GFC, consistent with ~1.0% average daily moves in the SPX over the next 30 days.

The VVIX (VIX of the VIX) also bounced but continues to trade heavier than the VIX not getting back Wednesday’s drop ending at 89.9.

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 the 1-day VIX jumped to 12.3, the highest close since the day before CPI, consistent with a move of 0.78% in the SPX next session.

WTI up to nearly a 1-month high.

The DXY dollar index (which is fixed weighted with a heavy (57%) weighting vs the euro) which saw its largest drop since April on Wednesday smashing through the 200-DMA got an unexpected bounce and reversed to a small gain Thursday.

The daily MACD as noted three weeks ago flipped to quite negative while the RSI was under 40 (and is again, was actually under 30 Wednesday, the most oversold since January). As noted Wednesday, though, the path lower from here is the easier one.

Gold futures (/GC) again tested the key 200-DMA, but this time from above. It held so I did add to my position today. As noted two weeks ago “still has a good technical setup with positive daily MACD and RSI,” and that remains the case.

Gold miners ETF

After the $GDX gold miners ETF had its best week since December 2008 two weeks ago (+21.3%, chart), last week the ETF had its largest inflow since February (second chart), and it’s currently up over 10% this week (third chart).

US copper futures (/HG) continue to trade around two-week lows above the 50-DMA. As noted Tuesday, the “supportive technicals” I’ve been harping on for the last month have now flipped negative. If we fall under that uptrend line, I’ll cut back my copper position.

US natural gas futures (/NG) fell back from the highest close in three weeks. The daily MACD as noted two weeks ago has flipped to more bullish and the RSI close to pushing above 50. That said, as I have noted for the past month it has layers and layers of resistance above.

Bitcoin futures continued what likely began as a short covering rally Wednesday adding another +6.2% (now up 12.1% the past two sessions) driving them now through the 100-DMA. I added a little more when that happened. Daily technicals remain strongly positive.

Misc

Great find from the @dailychartbook in their nightly email in a LinkedIn piece from @patrick_saner of Swiss Re who notes that even as the price of AI has fallen sharply, AI spend among the heaviest users (top 10%) rose 25% in July (and nearly 50% among the top 1%).

“And this isn’t just a one-month phenomenon. Since October 2023, monthly AI spend per employee among the top 1% of firms has increased by $6,542. The increase at the median over the same period was $9.63.”

“The firms furthest along the AI adoption curve appear to have a much higher elasticity of demand for intelligence. In other words, as AI becomes cheaper, they don’t simply spend less to accomplish the same amount of work. They find more things to do with it... the scarce resource may gradually be shifting away from access to intelligence and towards the organizational capacity to use it.”

“Falling AI prices may actually widen the gap between firms. The companies that already know how to use AI have the strongest demand response.... AI adoption may not be between companies that have AI and companies that don’t. It may simply be between companies that have figured out what to do with cheap intelligence — and those that are still figuring it out.”

Apparently all those data centers and chip plants aren’t enough to support architects with the AIA/Deltek Architecture Billings Index softening to 46.6.

“The persistent downturn in business conditions now extends to nearly three and a half years, as many firms continue to struggle to grow their billings. Clients are still bringing business to firms, as inquiries into new projects rose again in July, although at a slower pace than in June. However, the value of newly signed design contracts declined further after nearly approaching growth last month.”

“Business conditions also remained weak at firms in all regions of the country in July.... Billings declined at firms of all specializations as well. While firms with multifamily residential and institutional specializations both saw slight growth earlier this year, conditions have softened since then. Firms with a commercial/industrial specialization, on the other hand, have not reported an increase in billings since four years ago this month.”

American Association of Individual Investors (AAII) sees bulls and bears both edge higher, with bulls remaining below the level of the bears for a fifth week (and 20th in 25):

AAII bulls (those who see higher stock prices in 6 mths, blue line) edged from 34.7% to 35.5% (a little further above the 29.6% four weeks ago, the least since) but remaining below the long-term historic average of 37.5% for a fifth week.

Bulls also remained below the level of the bears (who see lower stock prices in 6 mths, red line) for a fifth week (and the 20th week in the last 25) with the bears also mildly higher from 37.9% at 39.9%. Bears remain above the long-term average of 31.0% for a 27th straight week (and they’ve only been below it 9 weeks since Dec 12, 2024).

The Neutral camp (yellow line) dropped from 27.4% to 24.6% as a result and remains under the long-run average of 31.5%. It has been over that only twice since July 2024.

Wrap-up

After our “low volume drift lower” Monday, then sharper decline Tuesday, Wednesday it turns out was just a small reprieve from what seems to be a broader purging of risk assets this week. It does seem to be at least related to the higher yields given Wednesday’s easing in those saw equities rally. It’s very hard to get a handle on where rates will go given the crosscurrents of high deficits, increasing competition from hyperscaler bond issuance, and the resilient economy set against an administration clearly looking to push them lower.

Volumes have been thin this week, but we do get the August options expiration Friday which will see them jump higher.

One positive was we did see some strength in the AI trade today. We’ll see if that at least continues into Friday, and, who knows, maybe we can get the rest of the market to come along this time.

The Day Ahead

As noted in the Week Ahead, it’s a relatively light week for US economic data, and Friday we just get the August flash PMIs.

In terms of Fed speakers, as also noted in the Week Ahead, none on the schedule for this week.

We’re also are done with Treasury auctions for the week.

In terms of SPX Q2 earnings we’re very much in the windup phase (at least until Nvidia next week) and no SPX components reporting Friday.

Ex-US highlights include global flash PMIs, Japan CPI, UK and EU consumer confidence, UK and Canada retail sales, ECB consumer expectations.

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Friday August 21

Data: US, UK, Japan, Germany, France and Eurozone August PMIs, UK August GfK consumer confidence, July public finances, retail sales, Japan July national CPI, France August business confidence, ECB July consumer expectations, Eurozone August consumer confidence, Canada June retail sales survey.

From Christophe Barraud

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