What Happened Last Week
- Yields Climb: Longer-term yields climbed to 20-year highs last week, pressuring the equity market.
- AI Theme Breather: AI’s recovery paused ahead of Nvidia (NVDA) earnings this Wednesday.
- Rotation: Despite the decline in semiconductors and pressure from yields, investors rotated into other sectors rather than selling equities.
What We’re Watching This Week
- Earnings Week Seven: NVDA, Marvell, and several software names will report earnings this week.
- Bond Price Action: Investors will be watching bond price action closely amid several Treasury auctions and commentary from Treasury Secretary Bessent this week.
- Warsh at Jackson Hole: Chair Warsh will speak at the Fed’s Jackson Hole conference on Friday morning.
Investment Management Team’s Views
The sound and fury surrounding long-term bond yields moved to the center of the market conversation last week as investors focused more closely on fiscal policy and the direction of policymaking in Washington. The 30-year Treasury yield traded above 5.3%, its highest level since 2007, while gold rose sharply, the dollar weakened, and Bitcoin posted its strongest weekly gain since 2023. We do not view the recent move as evidence of an imminent debt crisis, and thin summer liquidity has likely amplified some of the volatility, but concerns around long-term debt and policy uncertainty are not devoid of signal. Recent market action reinforces the case for greater equity diversification, including internationally, less reliance on fixed income as an automatic hedge to equities, and increased selectivity within bond portfolios.
Equity weakness was relatively contained compared with rates and currency markets, with technology and semiconductors leading modest declines after their recent rebound. The average S&P 500 Index stock held up considerably better, several domestic sectors finished higher, and emerging markets also advanced. That resilience beneath the surface suggests investors are still rotating within equities rather than broadly reducing exposure, which we view as a constructive technical signal. The market also continues to benefit from a strong earnings backdrop, while the fundamental drivers of the AI investment cycle remain intact despite some week-to-week volatility in leadership.
This week brings a crowded slate of catalysts across both equities and rates. Nvidia reports Wednesday and should provide one of the clearest remaining reads on whether the AI industry’s vaulting ambitions are being matched by underlying demand, capital spending, and earnings growth. A July Personal Consumption Expenditures (PCE) inflation report will arrive that morning as well. The Treasury will also auction 2-, 5-, and 7-year notes across three consecutive days, providing an important test of demand following last week’s volatility in government bonds. Bessent’s remarks on Iran add another potential source of policy and energy-market headlines, before attention turns to Jackson Hole later in the week and Chair Warsh’s latest message on inflation and monetary policy. With so many catalysts arriving during thin late-August trading conditions, volatility could remain elevated, but healthy market breadth and solid corporate fundamentals continue to provide support.