Rates and Inflation Take Center Stage as Earnings Stay Strong

1. Rising Yields Create a New Source of Market Volatility Equity markets pulled back last week as investors weighed higher bond yields, rising oil prices, and renewed geopolitical uncertainty surrounding Iran. The Nasdaq, S&P 500, and Dow Jones Industrial Average declined 2.02%, 1.39%, and 0.78%, respectively.¹ The 10-year Treasury yield climbed to 4.73%, its highest level since January 14, 2025, while the 30-year yield reached 5.30%, its highest level in roughly 20 years.² The move has not been isolated to the U.S., with government bond yields in Japan, France, and Germany also reaching multi-year highs.

We are particularly focused on the 10-year Treasury yield and the 5% level. A sustained move above 5% could begin to create a more meaningful alternative for investors, potentially encouraging some rotation out of risk assets and into fixed income. However, we believe the key distinction is whether yields simply reach 5% or remain there for an extended period. Thus far, the bond market has remained relatively contained despite the numerous uncertainties investors have faced this year, including developments surrounding Venezuela, the Supreme Court’s decision on tariffs, private credit concerns, AI and software disruption, and the ongoing conflict in Iran.

Looking ahead, geopolitical developments will remain an important driver of rates. Investors will receive additional details on potential sanctions against Iran, while developments surrounding the tariffs on Canada will also be closely watched. Although the headline risks have generated significant attention, the direct economic exposure to Canada remains relatively manageable, representing approximately 2.3% of total U.S. goods and services trade and roughly 5% of U.S. goods imports. At the same time, reports that the Treasury is considering using part of its roughly $1 trillion General Account to increase purchases of longer-dated Treasuries could provide support for the 30-year market and help alleviate some of the recent upward pressure on long-term yields.

2. Earnings Continue to Provide a Strong Foundation Despite the recent market volatility, corporate earnings remain one of the most encouraging aspects of the current environment. With approximately 94% of the S&P 500 having now reported results, earnings growth is running at 49.6% year-over-year, while revenue growth stands at approximately 14%.³ The breadth and magnitude of the results continue to point to a healthy underlying economy and resilient corporate sector.

Importantly, companies have continued to exceed expectations. Approximately 88% of companies reporting have beaten earnings estimates, with the average earnings surprise coming in around 28%. On the revenue side, 69% of companies have exceeded expectations by an average of 3.3%.⁴ This combination of strong earnings growth, healthy revenue growth, and widespread upside surprises provides an important counterbalance to the pressure created by higher interest rates.

3. Inflation and Semiconductors Take Center Stage This week brings several important catalysts that could help determine the direction of both rates and equities. The Personal Consumption Expenditures (PCE) report will be closely watched, with expectations for headline inflation at approximately 3.3% year-over-year. As the Federal Reserve’s preferred measure of inflation, PCE will be particularly important in shaping expectations around monetary policy. Investors will also receive additional insight into the consumer through personal income and spending data.

The Jackson Hole Economic Symposium will provide another major focus, with Fed Chair Kevin Warsh scheduled to speak. Given the recent rise in Treasury yields and continued uncertainty surrounding inflation, investors will be looking for additional insight into how the Fed is thinking about the path of interest rates and the balance between economic growth and price stability.

Earnings will also remain busy, particularly across technology and semiconductors. Nvidia, Marvell Technology, and Synopsys are among the key semiconductor names reporting, while Salesforce and CrowdStrike will provide important updates on enterprise software and cybersecurity. With AI-related stocks having experienced significant gains and increased volatility in recent weeks, investors will be watching not only the results themselves but also management commentary around demand, capital spending, and the broader AI investment cycle.

4. Fixed Income U.S. Treasury yields moved higher across the curve last week as investors reassessed the government’s fiscal outlook following the Treasury Department’s announcement that it will at least double the size of its long-term debt buyback operations. Additionally, the release of the FOMC minutes last Wednesday indicated that many policymakers believe additional tightening could be warranted should inflation fail to show sustained improvement. By Friday’s close, the 2-, 10-, and 30-year yields were higher by 7, 4, and 1 basis points, respectively.⁵

Credit markets modestly improved last week with tightening evident across both the investment-grade and high-yield sectors. Investment-grade spreads were tighter by 1 basis point to +117, while high-yield spreads narrowed 2 basis points to +312. Municipal yields were higher across the curve last week, increasing 2-16 basis points across the curve.⁶

Stephanie Link’s TV Schedule:

Return for Selected Indices⁷

Sources:

1. Bloomberg: As of August 24, 2026 ↩︎
2. Bloomberg: As of August 24, 2026 ↩︎
3. Bloomberg: As of August 24, 2026 ↩︎
4. Bloomberg: As of August 24, 2026 ↩︎
5. Bloomberg: As of August 24, 2026 ↩︎
6. Bloomberg: As of August 24, 2026 ↩︎
7. Bloomberg: As of August 24, 2026 ↩︎

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