US activity continued to surprise positively. Economists raised Q3 GDP growth expectations to 2.5% annualized from 2.0%<\/strong>, while the NY Fed nowcast increased to 2.27%<\/strong>. August flash Composite PMI jumped to 56.0<\/strong>, the strongest since April 2022, with services at 56.8 and manufacturing still expansionary at 53.2. Importantly, prices charged fell to their lowest level since October 2025, suggesting strong activity has not yet translated into renewed broad demand inflation.<\/p>\n\n\n\n The US consumer looks softer, but not recessionary<\/strong>. July retail sales fell 0.6% MoM, but ex-autos declined 0.3%, ex-autos and gasoline only 0.2%, and autos accounted for roughly half of the headline weakness. The GDP-relevant control group fell 0.4%, while Prime Day timing distorted non-store sales<\/strong>. Corporate evidence remained better: Home Depot comparable sales rose 1.7%, Target raised FY sales guidance to +5% from +4%, and Walmart reported +2.6% US comparable sales despite increasing value-seeking. Labor data were also firm, with initial claims at 206k, continuing claims at 1.799mn, unemployment at 4.1%, and the Philadelphia Fed employment index surging to 27.9 from 10.0, its strongest since April 2022. The evidence points to purchasing-power pressure from inflation rather than labor-market deterioration.<\/p>\n\n\n\n One important vulnerability is the increasingly large role of equity wealth in sustaining consumption<\/strong>. Household equity and mutual-fund holdings have risen to roughly 275% of disposable income, versus about 30% in 1982, and now represent around one-third of aggregate household wealth. At the same time, the savings rate has fallen to just 2.7%, one percentage point below the pre-2000 market-peak low. Strong equity appreciation may therefore explain part of the resilience of consumption despite weak real-income growth. This supports activity today but makes US aggregate demand more sensitive to a future equity correction, particularly because households have limited room to reduce saving further.<\/p>\n\n\n\n China<\/strong> was the clearest major-economy downside surprise<\/strong>. July industrial production slowed to 4.5% YoY from 5.2%, below the 5.0% consensus, while retail sales grew only 0.6% versus 1.0% previously. The weakness remained highly uneven, with electronic-equipment production rising more than 19% YoY while most other sectors decelerated. More concerningly, borrowers net repaid RMB590bn ($87.5bn) of local-currency loans, the largest contraction in records back to 2002. Luxury sales at the 25 largest brands fell more than 10% YoY, JD.com revenue declined 2.9% to RMB346.4bn, its first quarterly contraction since listing, and Goldman estimated early-Q3 growth near 4% YoY, below the government’s 4.5% to 5% target<\/strong>. Beijing is responding, with the decline in government spending narrowing to 4.4% YoY from 11.9% and new coordinated fiscal and financial measures being prepared for H2. The divergence between an AI-driven manufacturing complex and weak domestic demand is becoming increasingly pronounced.<\/p>\n\n\n\n Europe continued to improve<\/strong>, but with substantial internal divergence. Eurozone Q2 GDP grew 0.4% QoQ and 1.0% YoY<\/strong>, while the August Composite PMI rose to 52.1, manufacturing reached 52.8, its strongest since May 2022, and services held at 51.7. Germany led the industrial rebound, with manufacturing PMI at 54.1<\/strong>, while France remained in contraction with Composite PMI at 48.8 for an eighth consecutive month. Inflation fundamentals improved at the margin: negotiated wage growth slowed to 2.44% YoY from 2.56%, labor-cost growth eased to 3.1%, and one-year and three-year consumer inflation expectations declined to 2.9% and 2.7%, respectively. The 6.6% weekly rise in Brent, however, increases the risk that the energy shock interrupts this improvement.<\/p>\n\n\n\n Japan showed the opposite mix of firmer inflation and weak domestic demand. CPI excluding fresh food accelerated to 1.8% YoY, its second consecutive increase and fastest pace since January, while Q2 GDP grew only 0.3% QoQ, or 1.1% annualized, as capital expenditure weakened and private consumption was flat. This leaves Japan unusually exposed to the combination of imported energy inflation and weak household purchasing power.<\/p>\n\n\n\n Trade policy added a second external inflation shock<\/strong>. US-Canada negotiations collapsed late Friday and 50% US tariffs on hundreds of Canadian products took effect on Aug. 22, with Canada preparing retaliation. Separately, the US imposed tariffs of up to 100% on imported drones and components, with smaller drones facing 25%, primarily targeting Chinese supply chains. The combination of Brent near $95 and renewed tariff escalation matters more than either shock independently because both raise input costs and squeeze real household income while US growth remains strong enough to absorb them for now.<\/p>\n\n\n\n <\/p>\n\n\n\n <\/p>\n\n\n\n U.S. Treasuries sold off Friday-to-Friday, though closing changes masked sharp long-end volatility<\/strong>. The 2Y rose 6.5 bp to 4.238%, 5Y +6.0 bp to 4.426%, 10Y +4.2 bp to 4.736% and 30Y +1.2 bp to 5.274%<\/strong>, producing a bear-flattening: 2s10s -2.3 bp to 49.8 bp and 5s30s -4.8 bp to 84.8 bp<\/strong>. The 30Y touched 5.309%<\/strong> early in the week, a near two-decade high, rallied to 5.193% midweek and then retraced most of the move.<\/p>\n\n\n\n The defining event was Treasury Secretary Scott Bessent’s attempt to influence the long end directly<\/strong>. Treasury announced larger buybacks of longer-dated debt while leaning more heavily on short-dated issuance, a strategy Bessent described as a “Treasury Twist.”<\/strong> The objective was to reduce the amount of duration private investors must absorb, improve long-end technicals and pull 10Y and 30Y yields lower, thereby easing government and broader borrowing costs<\/strong>. The initial rally was sharp but short-lived: yields quickly moved back toward pre-announcement levels. The market’s message was that buybacks can improve liquidity and alter supply mix, but cannot offset the fundamental drivers of high long yields: a deficit near 6% of GDP, roughly $40tn of public debt<\/strong>, persistent inflation uncertainty, heavy sovereign issuance and rising private-sector financing needs.<\/p>\n\n\n\n The intervention is important because it signals a more active Treasury approach to managing long-term borrowing costs and raises the possibility of larger buybacks, reduced 20Y\/30Y auction sizes or greater reliance on bills<\/strong>. It also sharpens the policy divide with the Fed. San Francisco Fed President Mary Daly stressed that Treasury financing costs are Treasury’s responsibility, not the Fed’s, while Kashkari said over the weekend that the Treasury market remained functional and higher long yields were not making the Fed’s job more difficult. The Fed therefore showed little willingness to ease simply because Treasury wants lower yields.<\/p>\n\n\n\n The underlying repricing was primarily an inflation-compensation rather than real-yield move<\/strong>. The 5Y breakeven rose 8.4 bp to 2.337% and 10Y +4.9 bp to 2.333%<\/strong>, while real yields were flat to slightly lower Friday-to-Friday. Brent’s 6.6% weekly rise reinforced near-term inflation pressure. Fed pricing also turned more hawkish: the implied September hike probability rose from 31.9% to 39.6%, Dec-26 pricing increased 3 bp to 3.894% and Mar-27 +4.5 bp to 4.011%, extending the expected tightening cycle further into 2027.<\/p>\n\n\n\n Long-end pressure did not reflect failed Treasury auctions. The $16bn 20Y sale tailed only 0.5 bp with 2.53x bid-to-cover versus a 2.46x recent average, while the $8bn 30Y TIPS reopening stopped around 2 bp through the when-issued level with 2.82x coverage. Demand remained functional at sufficiently attractive yields. The larger issue is the quantity of duration competing for investor balance sheets. August U.S. IG issuance exceeded $145bn, an August record, while AI financing became increasingly relevant: Broadcom was reportedly exploring more than $60bn of debt financing, and Bessent described AI borrowers as effectively “yield agnostic”<\/strong> given expected returns on investment.<\/p>\n\n\n\n The pressure was also global. Friday-to-Friday, JGB 30Y yields rose 4.7 bp and JGB 40Y +9.1 bp<\/strong>, versus +3.5 bp in German 30Y Bunds and +2.1 bp in UK 30Y gilts<\/strong>. Japan is particularly important as sticky inflation and expectations for further BOJ tightening threaten another source of upward pressure on global term premium.<\/p>\n\n\n\n The week’s core message is that Bessent demonstrated Treasury’s willingness to intervene, but the market demonstrated the limits of that intervention<\/strong>. Buybacks can temporarily support the long end, but sustained lower yields likely require softer inflation or growth, fiscal consolidation, or materially larger changes to issuance strategy. That leaves Jackson Hole on 2026-08-28<\/strong> as the next major test, with Chair Kevin Warsh expected to clarify the Fed’s reaction function and whether elevated long yields are viewed as a policy problem or simply the market pricing fiscal, inflation and supply risks.<\/p>\n\n\n\n <\/p>\n\n\n\n <\/p>\n\n\n\n US credit remained remarkably resilient to the long-end Treasury selloff and oil-driven inflation shock, but dispersion increased materially. IG OAS widened just 1bp to 80bp and HY 3bp to 269bp<\/strong>, while CDX IG was effectively unchanged at 50.9bp and CDX HY widened 3.6bp to 303.4bp. Lower-quality credit absorbed most of the stress: CCC OAS widened 19bp from 895bp to 914bp, reaching a 16-month high after a sharp midweek repricing, while CCC yields rose toward 13.6%. BB spreads entered the week near a two-decade tight of ~148bp<\/strong>. IG and HY both returned -0.15%, although for IG the loss was primarily duration-driven, whereas HY reflected modest spread deterioration. Leveraged loans were essentially unchanged at 95.42 vs 95.45, again demonstrating their relative insulation from rising Treasury yields.<\/p>\n\n\n\n Primary-market conditions became significantly more differentiated<\/strong>. US IG issuance still reached approximately $21bn, above the roughly $20bn dealer forecast, while cumulative August issuance surpassed $145bn, already a record for the month and the third consecutive monthly record in 2026. However, new-issue concessions increased from roughly 5bp early in the week to ~9bp, order-book attrition remained unusually high at nearly 40%, and at least seven potential issuers stood down during the peak of the rates selloff. HY issuance effectively stalled, with just $1.35bn across three deals over the main Tuesday-Thursday window. Fund demand nevertheless remained positive: short\/intermediate IG attracted +$1.88bn, HY +$97m and leveraged loans +$507m; IG has now recorded 19 consecutive weeks of inflows, although flows slowed materially from the prior week.<\/p>\n\n\n\n AI financing remains the defining structural supply theme. <\/strong>QTS Realty priced $3.9bn of IG-rated secured debt linked to a Microsoft data center, with initial yield talk around 7.63%, yet attracted approximately $23bn of orders, ~6x covered. Alphabet’s debut Australian-dollar transaction raised A$5.5bn, with the 20-year tranche yielding 6.98%, the highest ever on Alphabet debt<\/strong>, against more than A$18bn of demand. Potential supply remains substantial: Broadcom was reported to be considering >$60bn of debt financing tied to AI infrastructure, while another roughly $1.15bn CoreWeave-linked data-center bond<\/strong> is being prepared for September. The message is increasingly clear: AI borrowers remain relatively price-insensitive because expected project returns exceed funding costs, but the scale of issuance is beginning to require larger concessions and is creating relative-value pressure within long-duration IG.<\/p>\n\n\n\n Fundamentals remain broadly supportive, but stress is becoming increasingly issuer-specific. The approaching 2027-28 maturity wall matters most for CCC borrowers, which typically need to refinance 15-18 months before maturity, meaning evidence of refinancing capacity should begin appearing from 4Q26. Earnings and interest coverage remain more important than refinancing rates for now, but weaker issuers are already separating from the market: Bally’s warned of substantial doubt over going-concern status, Fitch downgraded Veracode to CCC+, and Liberty Communications was cut to CC. Consumer credit also deserves caution as lower-income households weaken, supporting an underweight to more exposed restaurants and discretionary borrowers.<\/p>\n\n\n\n Private credit is simultaneously becoming more attractive for lenders and more important from a systemic-risk perspective. US life insurers held roughly $807bn of illiquid fixed-income assets at end-2025, around 20% of their $4tn fixed-income portfolios<\/strong>, while the narrower privately rated segment underpinning the current regulatory debate has risen toward approximately $481bn. Moody’s is pushing for tighter standards around private ratings as private credit migrates from traditional sponsor-backed leveraged lending into investment-grade infrastructure, utilities and AI\/data-center financing. Meanwhile, non-traded BDC fundraising collapsed to only $2bn in 2Q26 from $11bn a year earlier, -82% YoY, reducing the excess capital that compressed private-market spreads in 2024-25 and improving pricing power for remaining lenders.<\/p>\n\n\n\n Positioning remains cautious rather than outright defensive<\/strong>: favor banks over corporates, the belly over long-duration IG, and leveraged loans for floating-rate carry. Broad credit fundamentals and strong technical demand continue to justify tight aggregate spreads, but today’s risk\/reward is increasingly asymmetric. The pressure points are CCC refinancing, lower-income consumer exposure, weakening long-end technicals and the collision between record AI corporate issuance and massive Treasury supply. The key Week 34 signal was therefore not broad credit deterioration, but a clear increase in quality, duration and issuer dispersion beneath exceptionally tight headline spreads<\/strong>.<\/p>\n\n\n\n <\/p>\n\n\n\n <\/p>\n\n\n\n Global equities turned more fragmented in Week 34, with the US market ending a three-week winning streak but showing considerably more resilience beneath the headline indices. The S&P 500 fell 1.43%<\/strong>, the Nasdaq declined 2.05%<\/strong>, the Dow lost 0.85%<\/strong> and the Russell 2000 fell 1.65%<\/strong>. More importantly, the S&P 500 Equal Weight declined just 0.49%<\/strong>, outperforming the cap-weighted index by approximately 94bp, indicating that weakness was disproportionately concentrated in the largest growth stocks rather than reflecting broad-based risk aversion. International performance diverged sharply: the Nikkei 225 fell 3.93%<\/strong> and the DAX declined 1.15%<\/strong>, while the FTSE 100 gained 0.62%<\/strong>, the Hang Seng rallied 3.55%<\/strong> on renewed Chinese policy-support expectations and MSCI Emerging Markets rose 1.22%<\/strong>.<\/p>\n\n\n\n The sector and factor tape reinforced the rotation away from prior leadership. Health Care (+4.33%)<\/strong> led by a wide margin, followed by Energy (+2.79%)<\/strong> and Materials (+1.90%)<\/strong>, while Information Technology (-3.53%)<\/strong>, Utilities (-3.48%)<\/strong> and Industrials (-3.36%)<\/strong> were the weakest sectors. Across factors, Low Volatility gained 0.10% and Value declined only 0.36%, compared with Growth at -2.22%, Quality at -1.16% and Momentum at -3.80%. Value therefore outperformed Growth by 186bp, while Momentum suffered a roughly 5.3% drawdown from Monday’s intraweek high to Thursday’s close. Breadth confirms that the selloff caused genuine short-term damage: the share of S&P 500 constituents above their 50-day moving average fell 11.9pp to 57.5%. Longer-term breadth remained much healthier, however, with 69.0% still above their 200-day average, while Friday itself finished with 332 advancers versus 169 decliners. The combination suggests a sharp leadership and momentum reset rather than a structural breakdown in the broader market.<\/p>\n\n\n\n Fundamentals were considerably stronger than the tape suggested. Reported Q2 S&P 500 EPS is tracking at $91.36, up 53.9% y\/y<\/strong>, while revenue is growing across 10 of 11 sectors. Energy leads revenue growth at 19.1%<\/strong>, followed by Materials at 11.7%, Industrials at 9.5% and Technology at 9.3%. Small-cap earnings are also participating: Russell 2000 blended Q2 EPS growth stands at 56.4% y\/y. Most importantly, estimates continued moving higher through the selloff. Consensus 2027 S&P 500 EPS increased 0.28% during the week to roughly $388, and has risen approximately 4.9% over the past three months, with current estimates implying around 14.4% EPS growth from 2026 to 2027. Headline reported earnings should nevertheless be treated with some caution because approximately $121bn of one-time mark-to-market gains, including gains on strategic AI investments, have boosted aggregate net income. Even allowing for that distortion, however, the direction of underlying earnings and revisions remained positive.<\/p>\n\n\n\n Valuation therefore provides the cleaner explanation for the week’s weakness. The S&P 500 NTM P\/E fell from 20.07x to 19.70x<\/strong>, while the Nasdaq-100 compressed from 22.30x to 21.60x<\/strong>. By comparison, the equal-weight S&P 500 moved only from 17.28x to 17.14x<\/strong>. The Nasdaq consequently de-rated by 0.70 turns, five times the equal-weight index’s 0.14-turn compression, while longer-dated earnings estimates were simultaneously being revised upward. The S&P 500 Technology sector still trades at roughly 28.3x NTM earnings, around a 44% premium to equal-weight, leaving substantial valuation sensitivity concentrated in the same part of the market that had delivered the strongest prior momentum. Week 34 was therefore overwhelmingly a multiple-compression and leadership event rather than an earnings-driven deterioration in the broader equity market.<\/p>\n\n\n\n Single-stock dispersion remained exceptionally high. Moderna surged 129.2%<\/strong>, dominating Health Care performance, while Coinbase gained 25.6%, Est\u00e9e Lauder 18.4%, Freeport-McMoRan 15.3%, Robinhood 13.2%, Mosaic 13.0%, Merck 12.3% and Newmont 11.7%<\/strong>. Late-season earnings continued to produce large reactions: Target delivered a 78% EPS surprise and raised guidance, Analog Devices produced a clean beat-and-raise, while Walmart’s 2.6% US comparable-sales growth versus 3.2% expected was its slowest in six years and prompted a sharp selloff. With 88% of reporting S&P 500 companies beating EPS estimates, the more important signal was increasingly not whether companies beat consensus, but whether the magnitude of fundamental upside was sufficient to justify starting valuations and positioning.<\/p>\n\n\n\n Flows also argue against interpreting the week as broad equity capitulation. Equity mutual funds recorded their 129th consecutive week of outflows, with $20.9bn leaving in the latest reported week and cumulative withdrawals over the streak reaching approximately $2.48tn. At the same time, equity ETFs attracted $19.3bn, followed by a further $21.9bn in subsequently reported inflows, reinforcing that much of the mutual-fund weakness remains structural migration rather than wholesale equity liquidation. Hard prime-brokerage evidence of forced CTA selling during Aug 14-21 is not available, so the 3.8% weekly decline in Momentum and its larger intraweek drawdown should be treated as evidence of a momentum unwind, but not attributed confidently to a specific investor cohort.<\/p>\n\n\n\n Macro The global macro backdrop remained resilient but increasingly uneven, while the renewed Iran and Hormuz shock materially raised the inflation tail risk. Brent rose 6.6%, from $88.52 to $94.39\/bbl, and briefly approached $95, after the US-Iran MOU expired on Aug. 18 without replacement, Trump ruled out ongoing talks, the UAE cut economic ties with […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"nf_dc_page":"","_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-1919","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"blocksy_meta":{"styles_descriptor":{"styles":{"desktop":"","tablet":"","mobile":""},"google_fonts":[],"version":8}},"yoast_head":"\n
\n\n\n\nRates<\/h2>\n\n\n\n
![\"\"](\"https:\/\/i0.wp.com\/karolpelc.com\/InvestorSnippets\/wp-content\/uploads\/2026\/08\/ust_yields_intraday_2026-08-22_W34.png?fit=1024%2C576&ssl=1\")
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\n\n\n\nCredit<\/h2>\n\n\n\n
![\"\"](\"https:\/\/i0.wp.com\/karolpelc.com\/InvestorSnippets\/wp-content\/uploads\/2026\/08\/credit_yield_vs_spread_2026-08-22_W34.png?fit=1024%2C576&ssl=1\")
<\/figure>\n\n\n\n
\n\n\n\nEquities<\/h2>\n\n\n\n
![\"\"](\"https:\/\/i0.wp.com\/karolpelc.com\/InvestorSnippets\/wp-content\/uploads\/2026\/08\/global_index_weekly_2026-08-22_W34.png?fit=1024%2C576&ssl=1\")
<\/figure>\n\n\n\n![\"\"](\"https:\/\/i0.wp.com\/karolpelc.com\/InvestorSnippets\/wp-content\/uploads\/2026\/08\/sp500_sector_weekly_2026-08-22_W34.png?fit=1024%2C576&ssl=1\")
<\/figure>\n\n\n\n
The rotation was clearest across the AI and mega-cap complex. AMD fell 8.0%, Meta 6.8%, Broadcom 6.2% and Nvidia 4.6%<\/strong>, while Microsoft declined 2.5%, TSMC 1.7% and Amazon 1.5%. By contrast, Tesla gained 6.0%<\/strong>, Apple rose 1.1% and Alphabet was broadly unchanged. Weakness also extended through the wider AI infrastructure and high-multiple technology ecosystem: Jabil fell 13.7%, Seagate 12.7%, Intel 12.1%, CrowdStrike 11.5%, Coherent 11.1% and Vertiv 10.9%<\/strong>. Particularly instructive was Keysight (-11.7%)<\/strong>, which sold off despite Q3 revenue rising 37% y\/y<\/strong>, EPS beating consensus by roughly 24%<\/strong>, and Q4 guidance coming in substantially above expectations. Together with the 94bp equal-weight outperformance, this points to disproportionate pressure on previous technology and AI leadership, even though exact constituent contributions to the S&P 500 cannot be calculated from the available Bloomberg index-weight data.<\/p>\n\n\n\n
The setup into the following week leaves Nvidia’s August 27 earnings<\/strong> as the key equity-specific test. Options were pricing only around a 4.6% post-earnings move<\/strong>, unusually subdued relative to Nvidia’s historical earnings volatility after the stock entered the week down 4.6% from the prior Friday. A strong report would support the interpretation that Week 34 represented primarily a valuation and positioning reset within an intact AI earnings cycle; disappointment around demand, margins or hyperscaler spending would instead risk turning a concentrated leadership unwind into a broader reassessment of the market’s dominant earnings theme.<\/p>\n","protected":false},"excerpt":{"rendered":"