A sudden sharp equity market selloff in July led to an immediate and robust recovery in August, marking fresh all-time equity market highs. The S&P 500 touched 7,798 mid-month and closed up 13.1% year-to-date. The tech-heavy NASDAQ 100 advanced 17.1% while emerging and developed non-US markets powered ahead 24.5% and 14.8%, respectively. The bond market also experienced significant summertime volatility, equating to higher yields and demonstrably lower bond prices across the yield curve. For example, the 10- year Treasury ranged from 4.37% to 4.75%, while the 30-year jumped 47 basis points to close August at 5.31%. To give further context, these rate increases equate to (3.00%) and (7.25%) price declines for 10 and 30-year U.S. Treasury bonds. Similarly, mortgage rates increased commensurately over the summer adding further to challenges to the housing sector and consumer sentiment in general.
As we move into autumn, bond market volatility and midterm elections are likely to take center stage. The new Fed Chair Kevin Warsh found his sea legs at the recent Jackson Hole summit where he telegraphed a rate hike without offering explicit guidance, causing the bond market to take heed and sell off sharply. Simultaneously, Treasury Secretary Scott Bessant has been buying Yen to support the Japanese currency. This move signals to currency speculators that the U.S. will in fact intervene to help stabilize the Japanese currency. The unstated goal to dissuade Japan from selling additional U.S. Treasuries to repatriate cash to support their bond markets which have been under pressure as well. In another surprise move, Bessant announced that Treasury would be buying long term bonds in the upcoming November refunding. A strategy designed to calm bond investors and forewarn speculative bond shorts that they could get squeezed by the U.S. Treasury Department’s big wallet. These interventionalist moves were surprising since they run counter to the Treasury Secretary’s stated preference for less financial market intervention than his predecessor Janet Yellen.
For the second quarter of 2026, with 97% of S&P 500 companies having reported, 86% have marked a positive EPS surprise, and 77% have reported a positive revenue surprise. Year-to-date energy has been the standout up +44%, Technology +23%, and materials +17%. Ironically, the “Magnificent Seven” has floundered, up only 4.8% owing to a brutal tech correction in July in response to an overextended rally.
Equity markets have a tremendous tailwind for the second half of the year. However, sharply higher interest rates, an unresolved Iranian war, and potential political upheaval in November that could lead to divided government (sometimes good for markets) are significant headwinds. Now is the time to reevaluate sector allocations to ensure portfolios are not over-exposed. The balance of risks to the downside appears to be greater in the second half. However, market history suggests a well balanced portfolio suited to the clients’ risk tolerance is the optimal way to navigate market uncertainty and then be prepared to ride out the inevitable market turbulence.
George J. Dickson Jr. | Senior Executive Vice President
Chief Investment Officer | Co-Head of Capital Markets
New York Private Bank & Trust | Emigrant Bank
