Weekly Newsletter: August 10, 2026
It just doesn’t matter. The war in Iran has gone on for over three months; it was supposed to be a few weeks. It just doesn’t matter. Valuations of the SP500 remain near all-time highs; it just doesn’t matter. Mid-term elections are around the corner; it just doesn’t matter. AI is going to take over the world; it just doesn’t matter. (Reference) There has been plenty tossed at the markets over the past six months, and it just keeps going up: inflation, interest rates, war, and AI have done little to dent the persistent rise in stocks. Yes, earnings have done well, driven by the spending on AI. Many of the companies engaged in the AI buildout are also borrowing money and issuing stock to keep the spend going. The unemployment rate dropped, even as non-farm payrolls declined AND a revision lower to prior months. The market took the “bad” news as good, believing that the Fed is not likely to hike rates at their September meeting. The inflation data due out this week is likely to have a much greater impact on their thoughts about hiking or cutting rates than the employment data. Will the markets be as cavalier with the inflation data or maybe poorer earnings from other companies in the AI sphere? Some Fed speakers this week, but the inflation data along with retail sales should help investors determine the health of the consumer and economy. Will it matter?
The employment report had a ton of moving parts that ultimately left investors with jaws open and stunned. The January and July reports, without seasonal adjustments, show huge negative readings. January is the seasonal layoffs, and year-end contracts are terminated. July is education-related, from teachers to student workers. The seasonal adjustments try to account for those large swings. However, if the layoffs come a bit late, it throws the adjustments off. This may have been the case with this report, but it will take another few months to determine if it was seasonal or a truly bad report. The severe slowing of immigration and boomer retirements also draws down the labor pool. As a result, those two months can be very different than “normal” trends. As a result, the weekly jobless claims may be a better reading on the economy. The low hire/low fire regime that has been in place for over a year points to a decent job market that has not (yet?) suffered from layoffs due to AI. A bigger piece of the puzzle will be the inflation data due this week. As energy prices have increased since the last report, expect that the data will show higher inflation.
Interest rates continue to get pushed around by oil prices. As they rise, yields rise, and bond prices fall. When energy prices fall, yields fall, and bond prices rise. Investors continue to reach for yield, buying corporate and high-yielding bonds to gain an advantage. So far this year, the Treasury investor has lagged the corporate and high-yield bond investor. The difference between Treasury, corporate, and high-yield bond interest rates is historically low. At some point, they will normalize, but it will likely take an “event” to change the current market configuration. Disruption in AI, more debt issuance, or a surprise in economic growth could be the catalyst. But right now, it just doesn’t matter.
Technology once again took the reins this week in what was a good overall week for stocks. Historically, August is one of the worst months on the calendar, but the opening week saw a much different picture. After declining much of July, tech stocks have started August very strong, gaining back a bit over half of their July decline in a week. The much-anticipated earnings from SpaceX were disappointing. On the other hand, other tech companies came through, and the AI trade seemed to regain momentum. The next big earnings report will be Nvidia, due at the end of August along with retail earnings. Is the tech rally a “last gasp” or the beginning of a new leg higher? Earnings and spending announcements are likely to tell the tale in the weeks ahead. The consumer will be watched closely too when the inflation data and retail earnings all hit over the next few weeks.
Will inflation matter? Is it driven solely by oil prices or has higher oil seeped into other parts of the economy? A few Fed governors will weigh in this week, but commentary will be light until the next Fed meeting in mid-September.
The opinions expressed in the Investment Newsletter are those of the author and are based upon information that is believed to be accurate and reliable but are opinions and do not constitute a guarantee of present or future financial market conditions.