Markets Update - 8/18/26
A look at what happened today impacting US equity, Treasury, and selected commodity markets, and what to watch for tomorrow.
Quick Summary:
US equity indices started Tuesday lower with tech shares leading the declines as global bond yields continued to press higher as discussed in the morning update.
30-year Treasury yields would touch new post-2007 highs and 10-year yields the highest since January of last year. Despite yields later easing back from those levels, equity indices never found much traction, with only the Dow Jones Industrial Average making a serious attempt at positive territory before falling back.
The main drag came from a sharp pullback in semiconductor and AI-infrastructure names, with the PHLX Semiconductor Index tumbling 5.0%, led by losses in memory stocks and optical/electronic manufacturing names.
Oil added to the pressure as hopes for a near-term US-Iran de-escalation continued to fade as also discussed in the morning update. WTI rose another 0.5% to roughly $85.
At day’s end, the S&P 500 fell 0.7% for a third consecutive losing session, the Nasdaq Composite lost 1.3%, the Russell 2000 also declined 1.3%, while the less tech heavy Dow Jones Industrial Average held up better with a -0.2% decline.
The rise in rates since the end of June (the 10-year yield is up around 35 basis points) has been unwelcome news for the housing market with a pair of reports today showing the pressures. July housing starts fell back towards their post-Covid lows, and completions dropped to the least since 2020 while units under construction (the “pipeline”) also remain just above those levels. Permits though did rise. Pending home sales (contract signings for existing homes) similarly weakened to the second-lowest pace on record (since 2001) in July as mortgage rates climbed to 1-year highs.
Tomorrow attention turns to more earnings reports from consumer names, including Lowe’s, Target, and TJX, as well as the Fed minutes in the afternoon.
Some market commentary:
US equities:
“You are going to get winners and losers and you’re going to get a lot of wasted capex,” said Justin Onuekwusi, chief investment officer at St. James’s Place. “That, to me, is a huge future challenge.”
“The Middle East is clearly re-escalating again and long-term interest rates are rising, and these are things that end up corroding the value of equities,” said Emma Moriarty at CG Asset Management. “And in a market where it’s summertime, liquidity is a little bit thinner, it’s a bit more prone to volatility.”
“The investment hurdle rate is rising again,” said Florian Ielpo at Lombard Odier Investment Managers. “This time through a combination of oil, fiscal supply and long-end term premium rather than a renewed acceleration in short-rate expectations.”
“The combination of higher energy costs and higher long-term borrowing costs is becoming increasingly uncomfortable,” said Fawad Razaqzada at Forex.com. “Equity investors have finally started to respond by going a bit defensive.”
“The market is overlooking the challenge on the bond yield side and preferring to focus on the solid earnings and the enhancements in artificial intelligence,” said Bill Fitzpatrick, portfolio manager at Logan Capital Management. “At some point, we’re probably going to be vulnerable to a bit of a sell-off.”
“The factors that are driving up bond yields are not going to alleviate tomorrow,” he added.
The supply of debt financing from AI demand and government deficits looks to keep upward pressure on yields, according to veteran strategist Louis Navellier. “Thankfully, with earnings soaring and profit margins at all-time highs, stocks can still be seen as attractive,” he added.
Bonds:
“AI-related spending will continue to be a feature of corporate fundraising in the coming months, which will keep longer-dated Treasuries — and highly correlated German bonds and gilts — under pressure. And the longer that yields stay higher, the worse the outlook for equities.” — Ven Ram, cross-asset strategist.
For Mohit Kumar at Jefferies, there is “no easy way out” of the Mid-East conflict and “further pain in the near term” for energy costs. “We have stayed away from the long end of the curve and rates duration and instead focus on steepeners,” he wrote. “We see no reason to change our portfolio.”
“Because of the strength of the AI trade, stocks haven’t cared about the persistent rise in global bond yields but it’s just a matter of when, not if, if this trend in rates continues, which I think it will as a bear on long duration,” said Peter Boockvar, chief investment officer at One Point BFG Wealth Partners.
“Higher interest rates don’t matter until they do,” said Matt Maley at Miller Tabak. “Therefore, the recent further rise in global bond yields is something investors will need to monitor very closely as we move through the rest of August and into the fall months.”
“The main factor precipitating this renewed falloff in the global equity space is the bond market, as yields continue on their upward path,” David Rosenberg, founder of Rosenberg Research, said in a Tuesday client note. “The 10-year T-note yield has risen to 4.74%, and any further increase from here would represent a breakout,” he wrote. “The long bond has already done that, tacking on +2 basis points to yesterday’s +5 basis point pop to 5.33%, the highest since June 2007 — which led the peak in the bull market back then by three months.”
In today’s Markets Update:
A deeper look at Tuesday’s stock and sector breakdown, including Technology’s underperformance which spilled over into Industrials weakness, continued Energy leadership, and defensive strength in Health Care and Staples.
A look at Home Depot’s earnings report and management’s comments on housing and larger discretionary projects.
A review of market breadth and participation, including large individual winners and losers and NYSE 52-week highs versus lows falling further.
A look at selected CNBC after-hours movers and Bloomberg corporate headlines, including Toll Brothers, Keysight Technologies, La-Z-Boy, Mercury Systems, Jack Henry, Meta, Anthropic, Nvidia, Klarna, and Baidu.
Updated technical charts across the SPX, Nasdaq, Russell 2000, and equal-weighted SPX.
A look at the rates and Fed backdrop, including Treasury yields reversing from early highs, the Reuters economist poll on Fed policy, corporate-bond issuance pressure on long-end yields, and US interest payments as a share of GDP.
A look at volatility and market structure, including VIX, VVIX, 1-day VIX, Goldman’s dealer gamma update, Goldman’s CTA setup, and Goldman on call skew versus put skew.
A review of cross-asset trends, including WTI crude, the dollar, gold, copper, natural gas, and bitcoin.
Yardeni on bond vigilantes and the 10-year yield, BoA’s latest Fund Manager Survey, Goldman’s Risk Appetite Indicator, and MarketWatch on the S&P 500’s strong six-year return stretch.
An update on housing and growth data Goldman’s Q3 GDP and July core PCE estimates, Atlanta Fed GDPNow, and ADP’s weekly hiring report.
A wrap-up on the AI trade, high gamma, rising bond-yield concerns, low-volume trading, and the setup into the Fed minutes.
A look ahead to Wednesday’s calendar, including US economic data, the FOMC minutes, Treasury auctions, SPX earnings, ex-US highlights, and the Canada tariff deadline.
