Fixed Income Update
U.S. Treasuries moved in both directions this week as investors reacted to key fundamental drivers: economic data, Fed expectations, and energy-market developments.
Another material decline in oil prices pushed Treasury yields lower to begin the week, driven by reports of a possible U.S.-Iran agreement to reopen the Strait of Hormuz. Those reports were later complicated by news that Iran was working with Oman on a toll-collection scheme without U.S. involvement, which pushed oil prices higher and Treasury yields followed later in the week.
Following last week’s Fed meeting, and in contrast to Chairman Warsh’s desire to limit Fed communications, officials were out in full force with commentary this week. San Francisco Fed President Mary Daly said she supported the decision to hold rates steady, though she described it as a close call. Philadelphia Fed President Anna Paulson published an essay saying that, despite her dovish reputation, policy may not be restrictive enough to return inflation to 2%. New York Fed President John Williams argued for keeping policy unchanged for some time, saying he expects inflation to come down in the second half of the year as some current inflation drivers fade. Lastly, St. Louis Fed President Alberto Musalem argued that interest rates should continue to provide meaningful restraint against inflation, which was unsurprising given his position as one of the committee’s more hawkish members. In the absence of further rate hikes, the market appears to be doing some of the Fed’s heavy lifting: two-year Treasury yields are about 15 basis points higher than when Warsh became Chairman, while 10-year yields are about 30 basis points higher.
This week also brought a fresh look at the labor market with Friday’s release of the July nonfarm payrolls report. The odds of a Fed rate hike in September dropped below 40% after a much weaker-than-expected report showed payrolls fell by 23,000 in July. The three-month average of job growth also fell from 77,000 to just 20,000. The unemployment rate dropped to 4.1%, but only because roughly half a million people stopped looking for work. Earnings growth, perhaps the most important labor-market input for Fed policy right now, slowed substantially to 3.2% year over year. The uneven nature of recent employment conditions will likely serve to perpetuate the divide in expectations for policy, as some officials advocate for action sooner rather than later while others continue to take a more cautious, wait and see approach.
For the week, Treasury yields finished lower by 7 to 9 basis points.
As of August 07, 2026
|
Index |
Current |
Last Week |
Wk Chg |
Last Year |
Yr Chg |
|
Tax-exempt MMF |
2.08% |
2.42% |
-.34% |
2.23% |
-.15% |
|
Taxable MMF |
3.66% |
3.66% |
.00% |
4.28% |
-.62% |
|
|
|
|
|
|
|
|
2-Year Treasury |
4.20% |
4.29% |
-.09% |
3.73% |
.47% |
|
5-Year Treasury |
4.36% |
4.45% |
-.09% |
3.79% |
.57% |
|
10-Year Treasury |
4.65% |
4.74% |
-.09% |
4.25% |
.40% |
|
30-Year Treasury |
5.20% |
5.27% |
-.07% |
4.83% |
.37% |
|
5-Year Exp. Inflation |
2.23% |
2.29% |
-.05% |
2.44% |
-.21% |
|
|
|
|
|
|
|
|
2-Year Municipal** |
2.62% |
2.70% |
-.08% |
2.27% |
.35% |
|
5-Year Municipal** |
2.90% |
3.02% |
-.12% |
2.48% |
.42% |
|
10-Year Municipal** |
3.36% |
3.47% |
-.11% |
3.31% |
.05% |
|
30-Year Municipal** |
4.60% |
4.66% |
-.06% |
4.87% |
-.27% |
|
|
|
|
|
|
|
|
Fed Funds |
3.75% |
3.75% |
.00% |
4.50% |
-.75% |
|
Prime Rate |
6.75% |
6.75% |
.00% |
7.50% |
-.75% |
|
Dollar*** |
$99.58 |
$99.91 |
-$0.34 |
$98.40 |
$1.18 |
|
CRB |
$377.00 |
$385.10 |
-$8.10 |
$293.87 |
$83.13 |
|
Gold |
$4,349.40 |
$4,049.10 |
$300.30 |
$3,400.30 |
$949.10 |
|
Crude Oil |
$78.10 |
$84.67 |
-$6.57 |
$63.88 |
$14.22 |
|
Unleaded Gasoline**** |
$2.99 |
$3.11 |
-$0.12 |
$1.96 |
$1.03 |
* Composite A
** General Obligation AA+
*** Int'l value of the U.S. dollar (Avg. exchange rate between the dollar and 6 major world currencies).
**** Futures price per gallon
Stock Market Update
US equities opened August with broad-based gains supported by a mix of strong second-quarter earnings, easing geopolitical concerns, and a shift lower in market-implied odds of a September Federal Reserve (Fed) rate hike. Positive momentum was reinforced by the S&P 500 putting in a new all-time high close, eclipsing its previous all-time high close from back in early June. Through Thursday’s close, the Nasdaq Composite led major US indexes, rising nearly 4%, driven by a sharp rebound in technology shares.
For equity investors, one of the key drivers of 2026 performance remains earnings growth. After first-quarter earnings growth of more than 20%, the S&P 500 is primed to deliver a second consecutive quarter of 20%+ earnings growth. Second quarter (Q2) blended earnings growth currently sits slightly above 50%. While a decent chunk of that number reflects unrealized equity gains reported by Alphabet and Amazon, by excluding those two companies, the Q2 blended earnings growth still sits at a robust 32%. Encouragingly, earnings growth has not been limited to a narrow swath of the market as eight of the eleven economic sectors are showing double-digit earnings growth. That broader earnings base continues to help support improved market breadth, with the Invesco S&P 500 Equal Weight ETF (RSP) outpacing the market-cap-weighted S&P 500 by nearly 2.5% year to date.
Technology stocks stood out to start the month following a difficult July, particularly for semiconductors. Software and semiconductor stocks both rallied this week, with the iShares Expanded Tech-Software Sector ETF (IGV) up more than 8% as of Friday morning and the iShares Semiconductor ETF (SOXX) up more than 7%. The rebound for the latter comes after SOXX fell more than 20% during July’s momentum unwind; SOXX remains up more than 80% year to date. Software stocks, which have been a laggard in 2026, benefited from Q2 results this week which helped to ease AI disruption concerns, at least for now. The Magnificent Seven stocks have improved as well, with the Roundhill Magnificent Seven ETF (MAGS) outperforming the S&P 500 by more than 4% since the start of the third quarter. Though, performance within the group has been bifurcated. Microsoft and Amazon have been key contributors, gaining roughly 34% and 15%, respectively, quarter to date. Both stocks rose more than 15% last week following quarterly results which showed evidence that AI investments are helping to drive growth. Overall, the market appears to be shifting from primarily rewarding AI hardware suppliers to recognizing AI hardware buyers and software names may also benefit as AI adoption continues to scale.
Geopolitics remained a source of headline risk, but investors continued to look past volatility tied to the Middle East conflict, instead focusing on the potential reopening of the Strait of Hormuz. Treasury Secretary Scott Bessent commented early in the week that an agreement to reopen the Strait of Hormuz could come shortly. Although no agreement had been reached as of Friday morning, Bessent’s comments helped to support market optimism. Oil prices and Treasury yields moved modestly lower on the week, providing another tailwind for equities. A reopening deal could help ease long-term pressure on oil prices and reduce inflation concerns.
Friday’s Nonfarm Payrolls report added another layer to the market backdrop. The July jobs figure was unexpectedly negative, at -23,000 versus consensus expectations for a gain of 95,000; both May and June figures were revised lower. While the report might raise some questions about the strength of the US labor market, investors seemingly decided to focus on how the jobs number might impact Fed policy. According to the CME FedWatch Tool, the market-implied probability that the Fed would remain on hold in September moved to 56% as of Friday morning, up from 45% one day earlier and 33% one week earlier. Reduced odds of a Fed rate hike in September helped to support equities on Friday.
Looking ahead, inflation remains a key variable for both investors and the Fed. With inflation remaining above the Fed’s 2% target, next week’s inflation updates could influence rate expectations, bond yields, and equity market sentiment. For now, strong earnings momentum remains supportive for US equities.
As of August 06, 2026
|
Index |
Current Week |
Month of Aug. |
YTD |
|
Dow Jones Industrial Avg. |
2.67% |
2.67% |
13.11% |
|
S&P 500 |
2.95% |
2.95% |
13.38% |
|
Nasdaq |
3.84% |
3.84% |
13.74% |
|
MSCI EAFE |
1.70% |
1.70% |
13.91% |
|
Russell Mid Cap |
1.94% |
1.94% |
16.81% |
|
Russell 2000 |
2.41% |
2.41% |
21.72% |
