August Economic Update

Market Summary

Rotation out of the tech sector continued throughout July which held down the major market indices. The S&P 500 actually ended July slightly in the green with a 0.06% gain while the tech-heavy Nasdaq 100 index pulled back -5.19%. The small cap Russell 2000 index also pulled back losing -2.74%. The bond market continued to experience pullbacks as well with the 30-year Treasury yield trading firmly above 5%. (1)

The first few days of August saw sharp reversals with the S&P 500 making new highs. The Nasdaq has also rallied but lags behind and is still below its all-time high. Bond yields remain elevated which partially explains the divergence between the broad, large cap sector versus the tech sector.

Oil, Iran, and Inflation

The uneasy peace established in June faced significant strain throughout July, reigniting market concerns over energy prices, supply chain friction through the Strait of Hormuz, and the trajectory of monetary policy. Oil prices fluctuated dramatically during the month following a breakdown in the preliminary June 17 Memorandum of Understanding (MOU) ceasefire framework on July 8. Disputes regarding maritime passage through the Strait of Hormuz and the implementation timeline of U.S. sanctions relief triggered renewed naval friction, driving global crude prices higher and reintroducing inflation anxieties into the broader financial system.

On the inflation front, backward-looking headline CPI printed at 3.5% year-over-year, while Producer Price Index (PPI) metrics registered at 5.5% year-over-year. While headline consumer inflation eased modestly from June's energy spike, underlying wholesale price pressures confirmed that sticky inflation remains a persistent challenge for domestic producers. (2,3)

Federal Reserve Announcement

On June 17, 2026, the United States and Iran signed a historic 14-point Memorandum of Understanding (MOU) that established an immediate, permanent ceasefire to end their military conflict on all fronts. This high-level political commitment opened a critical 60-day window for both nations to negotiate a comprehensive, final peace settlement and to reopen the Strait of Hormuz. Unfortunately - and quite predictably at this point - the Strait never reopened and as of the writing of this newsletter, President Trump has stated everything is off the table for the MOU and military strikes on Iran are resuming.

Inflation and the Federal Reserve

The Federal Reserve convened on July 29 for its FOMC meeting, holding the benchmark federal funds rate steady in a range of 3.50% to 3.75%. However, the decision highlighted growing internal divisions within the central bank under Chair Kevin Warsh. (3)

The committee voted 9–3 to maintain rates, with three dissenting members voting directly for an immediate 25-basis-point rate hike to combat lingering price risks. During his post-meeting press conference, Chair Warsh emphasized that further rate increases remain explicitly on the table, noting that potential trade tariffs and sustained capital expenditure into AI infrastructure could generate persistent inflationary tailwinds.

Looking Forward…

As markets enter August, economic indicators present a contrasting macro landscape. Consumer metrics showed modest signs of repair. The University of Michigan's Consumer Sentiment Index rose to 55.2 for the reflecting temporary relief from peak gas prices early in the summer. However, overall household sentiment remains depressed as elevated borrowing costs continue to weigh on consumer balance sheets.

The recent upward momentum has improved the technical posture on the charts but we have yet to see the equity markets begin to price-in rising interest rates in the bond market. So for the time being, getting back into the tech trade is constructive from a technical analysis perspective, but the macro economic risks persist.

We may see this next month spent trading at and around all-time highs before the seasonally weak period of September and October rolls around. At that point, if Treasury interest rates remain high or go even higher, the market could be setup for another pullback. If interest rates improve, that would likely sustain equities to keep trading higher. Of course, geopolitical risk will remain as a potential wild card.

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Monthly Financial Tip:

Audit your recurring monthly subscriptions and automatic payments once or twice a year. Unused streaming services, forgotten app subscriptions, or hidden service fees can quietly drain hundreds of dollars from your budget annually.

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Citations:

1. Schwab, July 31, 2026

2. Investing.com July 14, 2026

3. Investing.com July 15, 2026

4. Federal Reserve July 29, 2026

Disclaimers:

This post has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Bob Lawson is not engaged in rendering legal or accounting services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.