Weekly Newsletter: August 24, 2026
The umbrella is up, cool beverage on a side table, trashy novel in hand, and a folding chair just close enough to listen to the waves hit the shore. Then some dude comes by kicking sand all over the place. Treasury Secretary Scott Bessett kicked sand all over what was to be a quiet week on Wall Street. Evidently, bond yields were getting a bit too high for his liking, so some purchases were made of the long bond. What makes the move interesting is that this week, Fed Chair Warsh will be in the cool mountains near Yellowstone in Jackson Hole. He has said little about the direction of interest rates, nor much else regarding monetary policy in his two press conferences. Outside of a crazy day in the markets following the Treasury announcement, the markets finished the week pretty much where they started. So investors were able to enjoy a nice sunset after a bit of drama during an afternoon at the beach.
What made the actions of Bessett that much more interesting is that he is doing nearly the same thing that he derided former Fed Chair Yellen for doing during a portion of her tenure. “Operation Twist” is the euphemism for a Fed that sells short-term bonds and buys long-term bonds in an effort to bring down long-term interest rates. It is seen as purely a political move ahead of the midterm election, as the yield on the 10-year bond has steadily increased from just over 4% in February to nearly 4.7% today. The initial purchase was successful in pulling down long-term interest rates. By the end of the week, rates were essentially unchanged from before the announcement. While the bond market moves dominated the markets during the week, there were earnings releases from the major retailers. Following on the heels of the government release of poor retail sales figures two weeks ago, the earnings did little to clarify an already cloudy picture. Overall retail sales did ok, but guidance was a problem for companies like Walmart and Home Depot. Online sales continue to be a driver for many retailers vs. in-store sales. Retailers are usually seen as the end of earnings season; however, Nvidia will be reporting mid-week. Their report could inject some excitement into the tech sector that has been quite volatile over the past two months. Outside of the Jackson Hole Economic Policy Symposium, what used to be the Fed’s favorite inflation gauge, the Personal Consumption Expenditures (PCE) Index, is released. Personal Income and spending will highlight a week that will focus on speeches rather than the “hard” data.
The bond market was the focus of the week. There was much ado about nothing when all was done by market close on Friday. A few billion dollars are not likely to shift a $40 trillion market. There are plenty of reasons for rising yields on Treasury securities. Higher commodity prices, led by oil and fertilizers as a result of the war with Iran, may be at the top of everyone’s list. There has been roughly $150 billion in debt issued by the various hyperscalers so far this year, competing with Treasuries for investors’ money. Finally, there is some concern about the overall level of US government debt, which is now roughly 20% larger than the US economy. In 2000, it was roughly 60% of the economy. Investors may be demanding more yield for the increased risks of holding government debt.
Surely this day at the beach will have a happy ending! The equity markets remain calm amid the green noise of the ocean waves. Equity markets have been lifted by the very good earnings seasons this year, well above historical norms. Whether that pace can continue and support stocks will only be seen in the rearview mirror sometime in the future. Even with the strong earnings, equities remain, by many measures, near all-time highs. That said, the markets have not seen “fair valuations” in roughly 15 years. Historically, the markets swing between over- and undervalued. Beginning in the mid-90’s, the market has moved between fair value and very overvalued, only reaching undervalued in early 2009 in the depths of the financial crisis. Using valuation as a way to “time” the markets would leave investors poor, as the markets rarely turn lower once reaching “overvalued”. Investors have done an admirable job of riding the waves as risks rise. Surfers rarely ride a wave into the shore; so too, investors should be looking at elevated risks within their portfolios and begin the task of reducing risks that may also mean paying some capital gains taxes on what has been an incredible ride.
The “debate” between Bessett and Warsh may come to a bit of a head this week as Warsh will chat at Jackson Hole. Hopefully it has more specifics than platitudes.
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.