Markets Climb Past the Noise
AUG 2026
Markets regained momentum in early August as investors looked past July’s technology selloff and grew more comfortable that the Federal Reserve may not need to raise rates in September. Strong second-quarter earnings helped restore confidence in the artificial intelligence trade, while gains broadened beyond mega-cap technology into smaller companies and other economically sensitive areas. At the same time, the backdrop remained unsettled. Weakening labor demand raised questions about economic durability, and renewed disruptions in the Strait of Hormuz pushed oil higher, keeping energy-driven inflation risk in view even as recent price data improved.
The S&P 500 returned to record territory in mid-August as gains broadened beyond mega-cap technology into other parts of the market. Chip shares rebounded sharply from their July decline as investors returned to the AI trade, supported by strong earnings and forecasts across the semiconductor complex. But the advance was not confined to technology. Small caps continued to attract interest as earnings held up, a sign that market leadership was broadening. Energy also strengthened late in the period as Brent crude climbed to $88.52 a barrel on August 14, up 5.9% for the week, after shipping through the Strait of Hormuz slowed sharply.
Economic data gave investors more reason to expect the Fed to remain patient. Nonfarm payrolls unexpectedly fell by 23,000 in July versus expectations for an 83,000 increase, while May and June payrolls were revised down by a combined 103,0001. The unemployment rate slipped to 4.1%, partly because labor force participation fell to 61.4%1. Inflation was more encouraging: the Consumer Price Index (CPI) rose 0.1% in July and 3.4% for the 12 months ended July, while core CPI, which excludes food and energy, increased 0.2% for the month and 2.5% over the year2. The Producer Price Index (PPI) was unchanged in July, but retail sales fell 0.6%, adding another sign that consumer momentum may be cooling3.
The Bottom Line
The market enters the second half of August with a stronger tone but a more complicated economic message. Softer inflation and weaker hiring have reduced the urgency for a September rate hike, yet elevated oil prices and continued disruption in the Strait of Hormuz leave the inflation outlook vulnerable to another energy shock. Investors will next focus on Nvidia’s August 26 earnings, Chair Kevin Warsh’s Jackson Hole remarks later in the month, and the August jobs and inflation reports ahead of the Federal Reserve’s September 15–16 meeting. For now, broader participation beneath the headline indexes is constructive, but the rally still depends on inflation continuing to cool without a sharper deterioration in growth.
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