Markets Update - 8/24/26

Quick Summary

• US equity indices started mostly lower Monday despite easing Treasury yields and lower crude prices, with renewed weakness in semiconductors and AI-related names weighing on the technology-heavy averages.
• The S&P 500 Technology sector fell 1.6%, its seventh straight decline, the longest losing streak since February 2020 (i.e., the early days of Covid), as the PHLX Semiconductor Index dropped another 2.7% (now down nearly 10% over the past week). Nvidia also fell for a seventh straight session ahead of Wednesday’s earnings, its longest losing streak since 2022, while memory and semiconductor-component stocks also remained under pressure.
• That Tech weakness offset an otherwise firmer tape. Eight of eleven S&P 500 sectors finished higher, with four up more than 1%, while the equal-weighted S&P 500 outperformed the market-cap-weighted index finishing with a slight gain (as did the less tech-heavy Dow Jones Industrial Average).
• The broader market was aided by a decline in longer-end yields after reports that Treasury may use its General Account to help fund buybacks as discussed in the morning note, though the 2-year yield remained firm and Fed hike expectations edged higher ahead of Warsh’s Jackson Hole speech.
• The geopolitical backdrop also stayed in focus after Treasury Secretary Scott Bessent formally launched the administration’s “Operation Economic Outcast” pressure campaign against Iran which threatens economic punishment against any country doing business with Iran as part of an “economic D-Day” campaign. Oil traders though were underwhelmed with Brent futures seeing the largest decline in three weeks.
• At day’s end, the Dow Jones Industrial Average as noted gained +0.3%, while the S&P 500 slipped 0.3%, the Nasdaq Composite lost 0.8%, and the Russell 2000 also fell 0.8%.
• Tomorrow is relatively light on the calendar before a busy stretch of catalysts starting Wednesday, with July PCE inflation data and Nvidia earnings, followed by Chair Warsh’s highly anticipated Jackson Hole remarks Friday along with other important economic data.

US equity indices started mostly lower despite easing yields and crude prices and spent the day in the red w/SPX -0.3%, Nasdaq/RUT -0.8%.

The DJIA was the exception spending the day in the green ending +0.3%.

Some market commentary

“Details about US economic sanctions on Iran, the Treasury’s attempts to lower long-term yields, and economic data may shape much of the sentiment backdrop, but Nvidia and other tech earnings are positioned to be a major weight on the market’s momentum scale,” Chris Larkin at E*Trade from Morgan Stanley said.

Analysts are expecting nothing short of astonishing from the chipmaker. LSEG consensus estimates point to Q2 earnings and revenue doubling from the year-earlier period. But with expectations that high, the risk for disappointment is also elevated. “All roads lead to Nvidia thanks to the enormous AI build out and the circularity of the financing, which makes Nvidia the alpha bank of all of it,” said Richard Reyle, chief investment officer at Questar Capital Partners. “The question is, will the stock still have a muted reaction even with great numbers.”

“We’re in a little bit of the little summer doldrums,” said Robert Conzo, chief executive officer at The Wealth Alliance. However, if earnings growth continues to come in strong and inflation prints are as expected, the state of the equity market should be “pretty good” from here, he added.

“We can’t cross 40 trillion in debt and have the Federal Reserve with a massive balance sheet and expect that rates can come down in the face of a good economy,” said Leo Kelly, founder and CEO of Verdence Capital Advisors. “This is going to be an ongoing tug of war on these rates now.” “You have to fix the addiction to spending in government,” he continued.

“The ultimate problem with the Treasury’s intervention is that it costs money,” said Philip Marey, senior US strategist at Rabobank. “For now, the Treasury is funding this by shifting from longer-term debt to shorter-term debt. But with the total federal debt constrained by the debt ceiling, the Treasury will eventually run out of ammunition.”

“If yields come under renewed pressure, the Treasury’s response will be more revealing,” said Western Asset Management portfolio manager Robert Abad. “Further increases in buybacks or changes to long-end issuance would provide stronger evidence that policymakers are responding not only to market functioning, but also to the level of yields.”

“If the Treasury runs out of firepower and yields spike again, the Fed may feel compelled to step in and buy these bonds,” said Marey of Rabobank. “This scenario could render Kevin Warsh’s internal debate about balance sheet reduction entirely academic. Instead of exiting the fiscal space, the central bank would be pulled even deeper into it.”

“I’m nervous, because Bessent failed to cap long-term Treasury yields,” said Tracy Chen, portfolio manager at Brandywine Global. “The bond-market behavior shows that the bond vigilantes still don’t believe him.”

“This is set to be a pivotal week for asset markets, since there is still a chance the US Treasury selloff becomes a full-blown crisis,” wrote Kathleen Brooks, research director at XTB.

“I argue that the Treasury’s surprise decision to upsize tactical long-end buybacks is effectively a Treasury-led ‘Operation Twist’ designed to counter shifts in shorter term market conditions, rather than a form of QE,” wrote David Zervos, chief market strategist at Jefferies. “While buybacks do not create reserves and therefore lack QE’s direct money-printing channel, I believe they do leave room for fiscal expansion and deliver some QE-like reflationary effects.”

The U.S. Treasury intervention in the bond market — which includes tapping its near $1 trillion General Account to fund purchases — is a troubling and largely ineffectual strategy that undermines investor confidence, according to Mohamed A. El-Erian, chief economic adviser of Allianz. “Fundamentally, it doesn’t address what’s going on, which is there is significant demand for bond financing by the government, by tech in particular,” El-Erian told CNBC’s “Squawk Box” on Monday. “And the traditional suppliers are less dependable: China, Japan and the Gulf countries.” “Why are we uncomfortable about this? For two reasons. One, is that this sort of intervention makes sense when you can identify either a market failure or an institutional trouble. Neither is the case today,” he continued. “The other reason we’re uncomfortable is that this is a situation where market pricing is leading the Treasury to say more and more, rather than the other way around.”

“Any indication of how he views persistent inflation, the recent rise in long-term yields or the future size and role of the Fed’s balance sheet could trigger a meaningful repricing across Treasuries, the dollar, gold and equities,” wrote Daniela Hathorn, a senior market analyst at Capital.com.

“The Treasury attempt to cap long rates by issuing more short-term paper as the financing tool will tether US government interest rate expense ever closer to what the Federal Reserve does with the fed funds rate,” said Peter Boockvar, chief investment officer at One Point BFG Wealth Partners. “I don’t think this is something Kevin Warsh will talk about in his speech Friday but it is a new element he’s going to have to deal with.”

In today’s Markets Update

• A deeper look at Monday’s stock and sector breakdown, including the Tech-led weakness, pressure in memory and semiconductor-component stocks, and broader strength across eight of eleven S&P 500 sectors.
• A review of market breadth and participation, including the equal-weighted S&P 500’s outperformance, large SPX winners and losers, the day’s heatmap, and Goldman’s prime desk on selling in Industrials versus buying in Financials.
• A look at the recent pressure in Technology and semiconductors, including the S&P 500 Tech sector’s losing streak, Nvidia’s losing streak into earnings, BoA/Hartnett on semiconductor ETF outflows, JPMorgan’s Jason Hunter on the near-term market setup, Goldman on high-beta momentum weakness, and Goldman/Daily Chartbook on AI-stock correlation and leveraged Nasdaq positioning.
• A look at selected Bloomberg corporate headlines, including SpaceX’s planned AI satellites, Strategy’s balance-sheet funding plans, SoftBank’s record retail bond sale, and Alibaba’s Hong Kong offering.
• Updated technical charts across the SPX, Nasdaq, Russell 2000, and equal-weighted SPX.
• A look at the rates and Fed backdrop, including Treasury yields, updated Fed hike expectations, the General Account/buyback discussion, BoA/Hartnett on the Treasury’s long-end problem, BlackRock on the growing Treasury weight in bond indices, Mark Hulbert on rising rates and bull markets, and the setup into Chair Warsh’s Jackson Hole speech.
• A look at volatility and market structure, including VIX, VVIX, 1-day VIX, Goldman on call-skew activity, and Tier1Alpha on the gamma backdrop.
• A review of cross-asset trends, including WTI crude, the dollar, gold, copper, natural gas, and bitcoin.
• A look at dollar and commodity-related posts, including Bloomberg/Barraud on dollar positioning, Goldman on oil prices and equities, Yardeni on S&P 500 earnings estimates, Fundstrat’s Tom Lee on the S&P 500 setup, and BoA’s Fund Manager Survey read on gold.
• An update on the Chicago Fed National Activity Index.
• A look at current macro, positioning, and sentiment posts, including Goldman on enterprise AI spending, BoA’s Fund Manager Survey on investor positioning and crowded trades, Realtor.com on housing inventory, Goldman prime-book market sensitivity, Daily Chartbook on data-center and semiconductor demand, Morningstar on BDC credit trends, and the WSJ on employer health-care costs.
• A wrap-up on continued Tech de-risking ahead of Nvidia earnings, broader non-Tech market resilience, and the setup into Tuesday’s economic data.
• 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 (in part from Briefing.com)

The down session on the SPX was mostly a Tech story, finishing -1.6% (it’s 7th straight down session, something it hasn’t done since February 2020) and offsetting 8 of 11 sectors finishing higher with four up over 1%.

[BRIEFING.COM] Semiconductors remained at the center of the weakness throughout the session. The PHLX Semiconductor Index fell 2.7%, extending its recent pullback and leaving the information technology sector (-1.6%) at the bottom of the sector standings. Memory and semiconductor-component stocks were among the laggards following another weak showing in Asian markets, while NVIDIA (NVDA 208.46, -6.26, -2.92%) remained under pressure ahead of its earnings report Wednesday after the close, extending its losing streak to seven consecutive sessions.

Related weakness spilled into the industrials sector (-0.7%), where electronic equipment names remained under pressure alongside the semiconductor trade. Caterpillar (CAT 811.02, -16.88, -2.04%) and Boeing (BA 210.46, -3.74, -1.75%) were additional drags, while aerospace and defense stocks also struggled.

The losses in those areas contrasted with a considerably firmer showing across most of the market. E ight S&P 500 sectors finished higher, allowing the S&P 500 Equal Weighted Index (+0.1%) to outperform its market-cap-weighted counterpart.

The consumer staples sector (+1.8%) led the way as Walmart (WMT 106.49, +2.79, +2.69%) rebounded from its post-earnings weakness, while the financials sector (+1.2%) also posted a solid gain, with major banking and payment names contributing to the DJIA’s outperformance.

Strength in Alphabet (GOOG 344.59, +2.84, +0.83%) and Meta Platforms (META 559.02, +9.12, +1.66%) helped the communication services sector (+1.0%) outperform as well.

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

SPX Tech sector down again Monday, its 7th straight decline, something it hasn't done since the start of Covid (February 2020) according to Gemini.

As we approach earnings Nvidia is down for a 7th straight session (7% over that span), which would be the longest losing streak since Sept 2022.

BofA (Hartnett): Semi's see $0.7B outflow week through Wednesday ($6.3B outflow past 3 weeks).

BofA: Semiconductor investors finally blink. After cumulative ETF inflows surged from $20bn in Dec. 2025 to $75bn in Jul. 2026, the group has seen $6.3B of outflow over the past 3 weeks.

JPM's technical strategist Jason Hunter is looking for more weakness ahead for the tech sector and by extension the broader market:

In isolation, the broad indexes are still bullishly trending and have not yet given any clear warning signs that a downturn is imminent. However, a deeper look at market internals, shifts in leadership, and the technical setups across a number of markets that typically lead, raise concern heading into late-summer/early-fall bearish seasonality.

The broadening and rotation isn't like the 4Q25 occurrence, when the shift had a pronounced pro-cyclical theme. This time around, it seems to be an unrelated combination of position unwinds, attempts to rotate away from crowded Technology exposure and a shift into portions of the market that could be construed as defensive in nature.

While the hyperscalers saw some rotation into the underperforming group as hardware set back, the moves were uneven within the group, and the broad basket of these stocks remains below key 2026 range resistance. Given the similarities to what unfolded in 1999-2000 within the latter stages of the communications equipment capex investment cycle, we continue to see these market developments as a meaningful risk heading into post-Labor Day seasonality.

And the selling in industrials extends to Industrial ETFs according to BBG:

The State Street Industrial ETF — one of the largest funds tracking the group — is on pace for the smallest monthly inflow since May. Another major fund — the Vanguard Industrials ETF — is set to see its biggest monthly outflow since April 2025, when traders were gripped by fears about President Donald Trump's tariff policies.

Perhaps the reason we've seen selling in industrials is because they're expensive: a gauge of the group has gained 16% so far in 2026, a rally that has made it the most expensively valued sector in the S&P.

Out of the 11 sectors that comprise the 500-member benchmark, industrials currently have the highest valuation, beating out even information technology, which is at the frontline of the AI trade. The 12-month forward price-to-earnings ratio for the sector stands at 24.7, with information technology at 21.2 and S&P 500 at 19.7. They have been at these levels only one other time since 1990 — during the post-Covid years when earnings were rebounding from extreme lows.

Expectations for a cyclical recovery in 2027-28, coupled with secular tailwinds from AI and the data center buildout, reshoring and mega projects have further stretched already lofty industrial valuations. It could potentially leave the group more vulnerable to sharper pullbacks if growth expectations disappoint.

Yardeni: Health Care (OW) led the S&P 500 sectors last week, rising 4.3%.

Analysts have been marking up the sector. Two weeks ago, they expected earnings to grow 0.1% in 2026. They now expect 2.0% growth this year, with 22.2% penciled in for 2027. Biotechnology is the leading swing factor, forecast to shrink 6.4% this year and grow 47.1% next year.

Goldman: While Momentum rebounded from the lows following the de-leveraging episode at the end of July, this week's sell off on High Beta Momentum underscores how reactive the factor is relative to SPX & SPX-XAI and how extreme factor volatility remains relative to index volatility (>20 one day 5% sell offs in High Beta Momentum YTD, more than in the last 5 years combined).

But in @dailychartbook's Thursday night email was a very interesting chart from Goldman's Guillaume Soria noting the 2-month correlation between AI (the GS Broad AI basket) and non-AI (the S&P ex-AI index) stocks has gone from the positive correlation it has maintained almost the entirety of the series since 2020 to the most negative (by far) since then.

So this isn't AI and the rest moving independently, it's the two moving against each other (a true "either/or" market as @Chartist1 likes to call it).

So the calm-looking index is masking two large, offsetting trades.

Reflecting elevated gross exposures, hedge funds carry unusually large short positions in NASDAQ-100 futures and individual stocks.

Leveraged funds carry a near-record net short position in NASDAQ-100 index futures. Similarly, short interest in the median S&P 500 stock has declined slightly since late June but otherwise remains at its highest level in over 15 years.

While sector breadth was solid the number of large SPX winners (up over 3%) dropped to just 16 from ~30 Friday, 17 Thursday and ~90 Wednesday. Large losers (down over 3%) rose to ~30 from 8 Friday from ~45 Thursday.

Biggest after-hours movers from CNBC (links are to CNBC tickers)

None today, here were the mid-day movers:

• Nucor, Steel Dynamics — The steel manufacturing stocks climbed after trade negotiations between the U.S. and Canada collapsed on Friday. Shares of Nucor and Steel Dynamics were up roughly 2%. Canada is set to target the U.S. steel industry in its retaliatory tariffs that will start on Sept. 8.
• Expedia Group — The travel booking site’s stock gained more than 4% after Evercore ISI lifted its price target to $430 from $375. The firm, which sees nearly 34% upside from Friday’s close, kept its rating at outperform.
• Hims & Hers Health — The telehealth provider’s stock dropped 8% after Visa put Hims on notice for consumer disputes related to its weight-loss subscription, according to Bloomberg News. The company faces an $8 surcharge for each complaint, leading to a bill of roughly $75,000 due in September, Bloomberg reported, citing internal documents.
• Trucking stocks — Shares of trucking companies tumbled after President Donald Trump said the U.S. will lift Canada auto tariffs to 50%, starting Jan. 1, 2027. Shares of J.B. Hunt Transport lost 5%, while shares of Knight-Swift fell more than 3%. Old Dominion Freight Line ’s stock slid 2%.
• Applied Optoelectronics — Shares of the provider of optical components tumbled 11% after setting up an at-the-market program that would allow it to sell up to $600 million “from time to time” through Raymond James & Associates and Needham, according to a filing with the Securities and Exchange Commission.
• RUM Group — The company, which hosts Trump’s Truth Social platform, saw its stock gain 5%. RUM entered a $13.7 billion deal to supply an unnamed cloud customer with artificial intelligence chips, according to a filing with the SEC.
• Nvidia — Shares of the chip giant slid almost 2%, heading for a seventh straight losing session and its longest losing streak since September 2022. The decline comes after Bloomberg News reported over the weekend that Nvidia’s biggest customers were told that the prices of servers using the company’s artificial intelligence chips are rising more than 15%. Nvidia is slated to report quarterly earnings on Wednesday after the close.
• Chipmakers — Marvell Technology ’s stock declined 3%, while shares of Advanced Micro Devices and Intel fell more than 2%.
• Memory stocks — A slew of memory storage stocks were starting the week in the red before the bell. Shares of Sandisk and Western Digital fell more than 5%, and Seagate Technology ’s stock declined 6%. Micron Technology ’s stock slid 5%.
• Crypto-linked plays — Bitcoin prices topped $79,000, extending gains after posting a three-day rally in which it surged 22%. Shares of Strategy gained 4%. Shares of Riot Platforms and Mara Holdings advanced 3%.

Some other corporate news from BBG (links to BBG)

• Elon Musk says SpaceX ’s first AI satellites, powered by Nvidia Corp. chips., will initially launch in the fourth quarter of next year and hit “significant scale” in 2028.
• Michael Saylor’s Strategy Inc. is adding a new pool of cash to its balance-sheet toolkit, part of an effort to preserve flexibility as its once-powerful financing model remains under pressure.
• SoftBank Group Corp. plans a record ¥1 trillion ($6.3 billion) retail bond sale, the biggest by any issuer in Japan, as the conglomerate raises funds for its investment commitments to OpenAI.
• Alibaba Group Holding Ltd. raised HK$80 billion ($10.2 billion) in Hong Kong’s biggest follow-on offering, underscoring its willingness to amass and spend vast sums to take the lead in global artificial intelligence.

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 fell back closing right on the 20-DMA. As noted Thursday though the SPX along with the other three indices below have seen their MACD cross over to “sell longs” positioning.

Nasdaq fell below its 20-DMA to its 50-DMA.

The Russell 2000 (RUT) also back to its 50-DMA.

The equal-weighted SPX little changed just off all-time highs above all support levels.

Treasury yields fell across the curve Friday led by the long end:

Two-year Treasury yields, which ended up seven basis points last week were little changed at 4.24%. They remain 19 basis points below the peak close July 23rd, which was the highest since February of last year, but a one-week high.

They are ~58 basis points above the Effective Fed Funds rate (red line), continuing to call for rate hikes.

10-year yields down four basis points to 4.70% from a closing high to January 2025 on Friday.

30-year yields down five basis points to 5.23%, in the middle of their range over the past month.

30-year Treasury yields initially dropped around 4 basis points (much less than after Wednesday's announcement) and have pared some of that decline.

The Treasury could use its near $1 trillion General Account to help fund its recently announced plans to increase purchases of government bonds, according to two senior Treasury officials.

The TGA is essentially the government's checking account, a rainy-day fund of sorts held at the Federal Reserve. It is already funded with existing tax collections. Bessent has built up the TGA to around $950 billion currently, compared with a stated goal under the Biden administration of around $550 to $600 billion.

Reducing the TGA would mean the government would have less cash on hand in the event of a new debt-ceiling impasse. But the latest estimates are that a new limit won't be hit until the winter of next year and perhaps not until the early spring. That would give time to build it back up if needed. Meanwhile, bond yields could be influenced by even small use of the TGA or even just the recognition that the Treasury would use it to buy government bonds.

BofA's Hartnett also notes that "US admin currently 0-for-3 on '3 arrows' of 3% GDP growth (<2% growth past 6 quarters), 3% budget deficit as % GDP (it is currently 6% of GDP), oil production increase of 3 million barrels per day (up 0.3mbpd since '24); policy credibility measured by bonds & FX."

Higher yields and a weaker currency means credibility falling, hence a new late-summer determination to defend 'Maginot Lines' of $4/gallon gas, 160 dollar-yen, 5% UST bond yields, levels above which threaten economic/AI boom/bull/bubble policy objectives.

But US gasoline prices are once again >$4/gal (up from $3/gal pre-war), tough to push lower given US-Iran 'economic warfare' plus US crude inventories and Strategic Petroleum Reserve at 40-50 year lows; and US-Japan currency intervention needs to be backed up with a meaningful Bank of Japan rate hike on Sep 18th.

So attention turns to the Big One, capping long-term US Treasury bond yields at 5% so as to prevent a US government credit event and ease AI financing costs.

As always, Nomura's McElligott frames the situation confronting Sec Bessent much more colorfully characterizing the buyback announcement as a "Band-Aid on a bullet hole":

Post the cringingly executed Treasury's "Buyback" directive announcement we saw a massive "Gold Up, Dollar Down" impulse (and hey, even Bitcoin showing signs of life too) as they have been acting as "Pressure-Release Valves" for the attempts at stabilizing the messy Rates predicament which US authorities are dealing with, as we obviously crossed the Administration's rubicon w.r.t. the velocity of the UST Long-End repricing.

The particulars of the Treasury "Buyback" itself are irrelevant / de minimis, and reality is that this by-itself is a "Band-Aid on a Bullet Hole".

But what matters here is that it was a signaling exercise from Bessent that "Losing the Long-End" is a non-starter from here on out, and that monetary and fiscal-authorities are capitulating into more activist/interventionary-posture now as we move forward.

The mounting headwinds for the Rates market were increasingly stacking in non-linear fashion, but in the likely case that this isn't enough to placate market forces versus said authorities' desired economic outcomes, then after this signaling of intent comes the "juicy stuff". The inevitability that YCC or even QE / LSAP will be the next required move, but things have to get much worse first before the down-the-road realities which then require outright Fed purchases.

Many Wall Street analysts apparently are unaware of this, however, as in recent weeks they have been asking how high interest rates must rise before they kill the bull market. History teaches us that they are asking the wrong question. Interest rates more often than not are falling when bull markets approach their final top, not rising.

Of the 14 bull markets over the last 50 years in the calendar maintained by Ned Davis Research, in eight of them, the Treasury's 10-year yield was lower on the day of the top than where it stood three months prior.

Regardless of what other indicators you include in your model, you often find that including interest rates in your model not only does not increase its explanatory power but actually reduces it.

Looking at the "Fed Model," a valuation indicator that got much attention on Wall Street several decades ago which compares the stock market's earnings yield (the inverse of the P/E ratio) with the 10-year Treasury yield; the indicator is considered bullish when the earnings yield is higher than the 10-year yield, and bearish otherwise.

Comparing the model's predictive power over the last 50 years with that of the simple E/P ratio, using a statistic known as the r-squared (correlation), over the following 1, 5, and 10 years Fed Model sharply reduces explanatory power.

VIX rose slightly to 15.8. The indicator is in its “normal” range post-GFC, consistent with ~0.98% average daily moves in the SPX over the next 30 days.

The VVIX (VIX of the VIX) also rose a touch to 88.6 from the least since early June and third lowest reading of the year.

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.

Despite all of the concerns about bond yields and trade wars the 1-day VIX fell to 8.7, the second lowest reading (after last week’s) since the first week of January, consistent with a move of 0.54% in the SPX next session.

WTI eased back from the highest close since July 24th.

The DXY dollar index (which is fixed weighted with a heavy (57%) weighting vs the euro), edged higher despite the drop in bond yields after its worst week since January.

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 Thursday, the path lower from here is the easier one, but it’s holding in remarkably well.

From @C_Barraud's always packed morning Brief:

After the DXY dollar index's worst week since January, BBG reports "hedge funds are ramping up bearish dollar bets."

The premium to hedge the dollar's downside over the next month relative to its upside has climbed to its highest since February, according to a Bloomberg gauge.

Demand for dollar put options versus the euro, which gains in value as the greenback falls, was 47% greater than that of dollar call options on Aug. 21, according to data from the Depository Trust and Clearing Corp. based on contracts valued at $150 million or more.

Since the Treasury buyback announcement, we've seen broader demand for dollar downside hedges across the FX options market.

It promises to be an interesting and potentially tough week for the dollar.

Jane Foley, London-based head of FX strategy at Rabobank, noted growing market speculation that Bessent's efforts to cap bond yields could undermine Treasury credibility and weaken the greenback. In addition, Foley highlighted that the upcoming Treasury announcements on Iran, as well as rhetoric coming out of Tehran, are "leaving markets with the impression that an end of the war has been pushed further away." Federal Reserve Chairman Kevin Warsh's speech at Jackson Hole could also impact the dollar, she said.

Gold futures (/GC) continued their run adding another +0.4%. As noted at the start of the month “still has a good technical setup with positive daily MACD and RSI,” and that remains the case.

US copper futures (/HG) edged higher remaining in its uptrend from March (in addition to its longer term uptrend running to February 2020). As noted Tuesday, the “supportive technicals” I’ve been touting for the last month are now less positive.

US natural gas futures (/NG) little changed remaining in their range over the past three weeks. The daily MACD as noted two weeks ago flipped to more bullish and the RSI is just under 50. That said, as I have mentioned for the past month it has layers and layers of resistance above.

Bitcoin futures continued up for a sixth session adding another +2.2% (now up 21.4% the past four sessions). Daily technicals remain strongly positive.

Goldman: Wednesday through Friday saw over 1mm calls trade daily, including the highest one-day call volume ever in IBIT (1.58mm contracts).

The chase was evident with call skew steepening dramatically; the 3d change in 3m call skew was the largest steepening episode we've seen.

Misc

Stocks have suffered more when oil rises than they have benefited when it falls, Wilson said, making stable crude prices increasingly important for the market. He recommended using energy stocks as a hedge against a potential spike.

Another advance in oil prices could drive yields higher and eventually force the Federal Reserve to act as Chair Kevin Warsh seeks to bring inflation back to target.

At that point, the response would fall more to the Fed than the Treasury. We have little doubt the Fed would ultimately respond, but probably not before some additional market instability.

More broadly, Wilson also reiterated his preference for so-called quality stocks that have more stable earnings, strong margins and efficient operations. The strategist said the S&P 500's greater exposure to quality companies helped protect it from steeper losses during the semiconductor-led selloff in July, and he sees chip stocks unlikely to regain market leadership in the near term.

Yardeni: The 2027 analysts' consensus earnings estimate may be leveling off around $410 after climbing all year. We expect it to finish this year near $415.00.

The latest forward earnings of $393.28 should converge to our estimate as the year progresses. The S&P 500 should hit 8,400 by year-end if the forward P/E edges back up above 20.0.

CNBC: "Tom Lee expects the S&P to get back to records by end of month."

Fundstrat Global Advisors founder Tom Lee said he expects by the end of August the S&P 500 will return to levels between 7,900 to 8,000, which would be a gain of at least 3% from current levels.

He said the fact that there's no meeting of the Federal Reserve this month, and recent economic readings of a weaker-than-expected July jobs report while inflation cooled during the month likely altering the outlook for interest rate hikes in the near-term, are catalysts for the index to move higher.

He added a strong second-quarter earnings season, improving outlook for 2027 forecasts, and what Lee believes is a soon-to-be end of artificial intelligence-related de-leveraging, are other tailwinds for the S&P.

Tier1Alpha in their Sunday night update sees gamma a little thinner:

SPX will start the week in a neutral gamma regime, indicating dealer flows are likely to have a limited impact today, as positioning is not meaningfully offside in either direction. While this does leave us with a highly path-dependent setup this week, gamma levels remain near their lowest following last week's options expiration, meaning the impact of delta hedging is already relatively limited.

Combined, this points to a market that is more vulnerable to organic supply and demand pressures without the usual non-discretionary hedging buffers in place.

These are the conditions where new directional trends can begin to take hold and volatility can expand, but the setup still requires enough underlying momentum to drive the move in the first place, which is what we'll be watching for most closely this week.

Consistent with the Q3 GDP trackers, the Chicago Fed National Activity Index 3-month average (which has an ~80% correlation with GDP) remains right around trend growth at -0.04 (0.0 being trend growth, under -0.70 recession signal which has been 95% accurate).

The July reading was -0.08 from +0.06 in June.

Chicago Fed National Activity Index - July 2026

The reason I like the Chicago Fed National Activity Index (CFNAI) is that it gives a good distillation of a lot of inputs (85) from several different areas across the US economy and has an ~80% correlation with GDP. According to the Chicago Fed, “over the past 20 years the CFNAI has a 95% accuracy rate in predicting recessions with a lag time of6-18 months.

Goldman: However, the recent acceleration in enterprise spending on AI suggests that the impact of corporate AI adoption should become increasingly clear in coming quarters.

The Ramp AI Index shows that the monthly AI spend per employee for the median company has increased from $5 at the start of the year to $12 in July. The distribution of corporate AI spend is wide, with the top decile company spending $650 per month per employee in July (vs. $240 at the start of the year). This pattern mirrors the acceleration in the revenues of AI model providers this year.

During the Q2 earnings season, roughly 7% of S&P 500 companies discussed the expenses associated with implementing AI. While there was some evidence that AI impacted corporate expenses in Q2, most companies also noted that these costs remain relatively small, that managements are taking a disciplined approach to AI spend, and/or that the benefits of AI use are outweighing the costs.

BofA FMS: Fund managers are most overweight US equities, commodities and banks, each more than a full standard deviation above average and most underweight UK equities, cash and consumer staples, each more than a standard deviation below.

Hartnett: Most contrarian trades are long bonds/short commodities, long staples / short tech, long discretionary / short banks, long UK stocks / short US stocks.

The dichotomy of fund managers' most crowded trade also being their biggest fear continued into August.

BofA's August Global Fund Manager Survey this week: most crowded trade long global semiconductors (53%). Add long Magnificent 7 (11%) and nearly two-thirds name an AI-related trade as the market's most crowded.

Biggest tail risk: an "AI bubble" (32%), the #1 risk for a second straight month.

That said, both cooled from July (crowding 82% to 53%, bubble fear 45% to 32%). Yet neither gave up the top spot, and 71% expect no AI capex cut this year (up from 61%), while US equity allocations hit their highest since December '24.

Most crowded, most feared, fully invested.

Realtor.com:

Two long-running trends hit inflection points this week. Active inventory just reached its highest level since November 2019, capping a recovery from the pandemic-era low in August 2021.

Time on market matched or beat last year's pace for an eleventh straight week, a sharp reversal after roughly a year and a half of consistently slower-than-year-ago selling.

New listings broke the other way, snapping the year's longest streak of matching or beating last year.

And the median listing price's annual decline eased to its mildest reading since April.

Goldman: Overall factor exposure to Market Sensitivity has risen in the past month to 5-year highs (Market Sensitivity is the extent to which a stock is more or less responsive to market movements than another, after the model has accounted for broad market, country/industry, and other factor structure).

The @dailychartbook nightly email had a number of charts on demand for semiconductors, but one from Bernstein's Varun Govindaraj via @LJKawa was on the familiar issue in the chip business of double ordering (when supply is tight, buyers pad orders to assure minimum allocations, but when the shortage breaks the "phantom orders" vanish).

As the post indicates, it's happening again (Bernstein surveyed 50 data-center buyers and found ~50%+ are doing exactly that), but the twist this cycle is perhaps that risk has shifted from the sellers to the buyers.

Micron alone has said they have ~$100B of minimum contracted (take or pay) revenue with $22B of customer cash up front while Nvidia has prepaid its memory suppliers to hold allocation.

In every prior glut the chipmaker had to eat the cancellations. Too early to say "this time is different"?

Morningstar: US-registered BDC funds have more than doubled over the past three years to an overall portfolio size of about $516 billion of debt at cost as of the first quarter of 2026.

Debt for non-accrual borrowers has more than tripled over that period. The non-accrual share remained within a narrow 1.3%-1.5% band until the first quarter of 2026, when it increased 52 basis points to 1.9% from the previous quarter.

In dollar terms, non-accrual debt rose 39% (nearly $2.8 billion) in the first quarter alone, bringing the total to roughly $10.0 billion. This compares with just a 1% increase in total debt investments held by BDCs in the first quarter of 2026 from the prior quarter.

The number of borrowers with at least one debt instrument in non-accrual status reached 356 in the first quarter of 2026, representing 4.69% of all borrowers, up from 4.26% a year earlier. This share has risen steadily over the past three years, increasing from 3.69% in the first quarter of 2023.

WSJ: Americans with workplace coverage are expected to spend an average $5,297 this year on healthcare, $388 more than 2025, according to a new estimate from benefits-consulting firm Aon. The spending represents a combination of payroll deductions for premiums and out-of-pocket charges like deductibles and copays.

The burden is likely to grow significantly next year, when U.S. employers expect their healthcare costs to go up by 11.1%, according to a new survey from WTW, another big benefits consultant, the steepest rise in more than 20 years.

That would represent the fifth year of escalating increases, according to WTW. "Employers are telling us that this is utterly unsustainable," said Jeff Levin-Scherz, population-health leader at WTW.

Expensive cancer treatments and wide adoption of weight-loss drugs are among the factors pushing up spending.

X posts - Neil Sethi (@neilsethinew) / X for full posts/access to charts.

Wrap-up

I posted in the Week Ahead analysis from DB that indicated “lulls” at this point in the last four earnings seasons that they expected to last a couple of more weeks. In addition I mentioned we very well might see continued de-risking in the tech space ahead of Nvidia earnings Friday, but it seems like there might be something else to this. It’s something when the sector has the longest losing streak since the early days of Covid.

But as I also said “the broader strength Friday was good to see and hopefully continues into the upcoming week,” and despite some major catalysts for the non-tech trade this week, we saw just that today consistent with my overall conclusion that “otherwise, things remain tilted positively.”

The Day Ahead

In US economic data Tuesday brings us July new home sales, August Conference Board Consumer Confidence, the June repeat home price indices (Case-Shiller/FHFA), a couple of regional Fed surveys, and the weekly ADP job growth estimate.

In terms of Fed speakers, none on the calendar as we await Jackson Hole starting Thursday.

In non-Bill (>1yr maturity) US Treasury auctions we’ll get 2-years.

In terms of SPX Q2 earnings we’ll get one SPX component in INTU.

Ex-US highlights include Germany’s Ifo business sentiment, French consumer confidence.

Tuesday August 25 Data: US August Conference Board consumer confidence index, Philadelphia Fed non-manufacturing activity, Richmond Fed manufacturing index, business conditions, July new home sales, June FHFA house price index, Germany August Ifo survey, France August consumer confidence. Earnings: Intuit. Auctions: US 2-yr Notes ($69bn).