Economic Update 8-26-2026

Economic data included mixed results for PMI data, with manufacturing down and services up, gains in industrial production, and a decline in housing starts.

Equities lost ground globally last week, with the continued Middle East conflict and some volatility in government interest rates. As yields rose, bonds were mixed, with foreign bonds helped by a weaker dollar. Commodities saw gains, including another rise in energy, along with the ongoing U.S.-Iran tensions.

U.S. stocks fell back last week, with Middle East tensions continuing, along with higher oil prices and yields, as well as a pullback in semiconductor sentiment. Early in the week, the 50% tariff on Canadian goods (including culturally-relevant items like hockey sticks) set to go at midnight Tue. (later postponed to the weekend) which lowered sentiment as investors hoped the contentious tariff days were over. The U.S.-Iran tensions remained high, as comments from the U.S. administration towards Oman and the Strait of Hormuz generally alluded to a more drawn-out conflict.

By sector, health care led the way, up over 4% for the week, followed by energy and materials. Laggards included declines in utilities, industrials, and technology (semiconductor-related). Real estate also declined slightly. In the healthcare space, shares of Moderna more than doubled along with successful clinical trials for a melanoma vaccine, as well as partner Merck. This, coupled with delayed hopes for AI-related healthcare productivity gains raised hopes for not only that product but a class of personalized cancer vaccines with far shorter development times.

Foreign stocks were mixed, with gains in the U.K. and emerging markets, coupled with declines in Europe and especially Japan. For the latter, a consumption tax cut, rising yields, slowing economic growth, and a weak yen continued to weigh on sentiment. Within EM, weakness in Taiwan, correlated with U.S. tech was offset by other segments, such as South Africa and Mexico, seen as benefitting most from higher commodity prices.

Bonds fell back only slightly on net, despite yields rising throughout the U.S. Treasury curve. Floating rate bank loans outperformed traditional bonds, as might be expected. while unhedged foreign bonds fared best, due to a falling U.S. dollar. The 30-year U.S. Treasury bond reached 5.3%, another high point for the last 20 years, in keeping with record highs for Japanese and U.K. bonds for the same stretch. Concerns appear to be focused on government fiscal debt and deficits, as well as larger funding pressures from AI-related corporates (causing government yields to creep higher to compete).

By Wed., the U.S. Treasury Dept. announced it will double the size of liquidity support buybacks (although from levels of very small to less small, especially relative to larger past bond programs such as quantitative easing (QE)), mentioning the 10-20 year and 20-30 year segments specifically. It’s assumed that the recent rise in long-end Treasury yields was the more immediate catalyst for action (as buying demand can bring down yields most directly). However, yields fell by less than -0.10% upon the announcement. Markets had become used to the Fed’s buying/selling, in QE or QT functions, but Chair Warsh favoring a smaller Fed balance sheet ultimately left the door open for the Treasury to again take a more proactive role. However, by Thur., markets had already had reversed themselves a bit, with yields/term premiums rising due to the perception the government was concerned enough to perform a market action, but the size may not be sufficient. The underlying fiscal deficit/debt issues that have weighed on long-term bond prices don’t have an end in sight, although the U.S. dollar remained weak as ‘dollar debasement’ fears again were heard. In fact, U.S. debt passed the level of $40 tril. last week, beyond 100% of U.S. GDP, seen as a signal by some economists of being a load large enough to begin to weigh on economic growth.

Commodities gained broadly by several percent last week, led by energy, precious metals, and agriculture, all based on different drivers. Gold has become popular again, reversing course from weakness in the first half of the year, with the weaker dollar taking center stage as debt levels continue to creep higher. Crude oil prices rose another 5% last week to $87/barrel, as Middle East tensions persisted with more rhetoric and threats of further U.S. economic sanctions on Iran, but no resolution in sight.

Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.