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Economic and Market Overview

August 2026

Equity indices gained modestly, the yield curve flattened and credit spreads were rangebound over a month in which the conflict with Iran dragged on and Kevin Warsh opened up in Jackson Hole.

Markets

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Stocks gained with large caps leading the way as the S&P 500’s 2.7% return outperformed the Russell 2000’s 1.0% and the NASDAQ 100 gained 4.0%. In Treasuries, the yield curve bear flattened on the month’s penultimate trading session as the market reacted to Kevin Warsh’s first Jackson Hole speech as Fed Chairman (see below). Credit spreads had a relatively quiet month as an equilibrium emerged between strong demand and supply that continued to surprise to the upside. On that last point, late August typically sees a slowdown in primary market activity, but issuers were very aggressive over the first half of the month. J.P. Morgan reported $163 billion in IG issuance, 68% above the average for the trailing four Augusts and a new record. High-yield spreads tightened even as issuance rebounded from July’s 15-month low. $26.7 billion priced. After July’s surge higher, WTI fell sharply early in the month before steadily rallying to finish the month a touch higher. The Dollar Index fell 0.5%, while gold rose 9.7%.

Economic Data

Data releases over the month were mixed but, on balance, weaker than expected. Nonfarm payrolls growth disappointed in July, falling by 23k. Forecasters were expecting an 80k gain. The prior two months were also revised down by a net 103k. The weakness was largely driven by seasonal reductions in education which may have been exacerbated by lower summer school attendance linked to funding cuts. The unemployment rate surprised with a 0.1% drop, as the participation rate dropped again, this time by 0.1% to 61.4%. For August, economists expect a 55k gain in NFP and no change to the unemployment rate when data are released on September 4. Retail sales also came up short in July, as the headline rate fell by 0.6% and June’s release was not revised higher. Consumer sentiment indices varied again, as the University of Michigan’s topped consensus, while the Conference Board’s index printed below 90 for only the second time since April 2025. On the other hand, housing releases missed across the board. Manufacturing and services data were mixed. U.S. GDP grew at a 1.5% pace in Q2, according to the second release, which was not revised from the advance figure. Inventory decumulation and net trade weighed on the figure; however, personal consumption was revised 0.2% stronger to a robust 3.4% rate.

Inflation

July’s CPI report contained few surprises as the headline (0.1% MoM, 3.4% YoY) and core (0.2% MoM, 2.5% YoY) results were in line with consensus. PPI numbers were actually softer than estimates across the board. By contrast, headline PCE came in a touch hot (0.2% vs. 0.1%), but the core index’s 0.2% increase matched forecasts. Even with oil ending the month roughly where it began, near-term inflation expectations rose again. The 2-year breakeven rose 17 bps to 2.37%, while breaks at longer maturities rose just a few bps.

Federal Reserve

The Federal Reserve decamped to Wyoming for their annual Jackson Hole conference, where Chairman Warsh delivered the best public appearance of his short tenure. Warsh devoted nearly 500 words of his speech to highlighting “underlying inflation” as the key concept guiding the current policy debate and explaining his own methods for analyzing it. In doing so, he revealed more about his reaction function than he has since taking office in May. The near-term policy signal from Warsh’s speech was hawkish. He judged that recent cool inflation readings did not yet give him confidence that the underlying inflation trend has meaningfully improved, and he signaled a willingness to hike rates if it does not. Following his speech, the 2-year Treasury yield rose by 10 bps and the odds of a hike at the September FOMC meeting rose from 40% to 66%.

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Sources: Bloomberg Index Services Ltd., Bloomberg.

This overview is for informational purposes only. The information has been obtained from sources considered to be reliable, but the accuracy and completeness are not guaranteed. There is no assurance that any economic trends mentioned will continue or that any forecasts will occur. Economic data are as of the dates noted. 

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