Equities extended their August advance as US business activity grew at its fastest pace in more than four years. The Dow Jones Industrial Average climbed 1%. The Nasdaq 100 halted a five-day drop in the countdown to Nvidia Corp.’s results on Wednesday. Bitcoin rose to around $77,000. Treasuries saw mild losses. Oil notched a weekly gain.
Investors are assessing the fallout from a recent spike in bond yields that was fueled by worries about inflation and spendthrift governments, prompting the US to intervene to curb longer-term borrowing costs. They are now awaiting a promised new initiative from Treasury Secretary Scott Bessent aimed at fiscal consolidation.
“We suspect long-dated Treasury yields will stabilize over the next few weeks as some calm is restored following the recent bout of volatility in global sovereign bond markets,” said Joe Maher at Capital Economics.
The extent of this week’s equity decline was modest, but some signals cannot be ignored, said Mark Hackett at Nationwide. The drop was driven by concern over debt issuance and rates, frustration over stalled progress in talks with Iran and skepticism on the artificial-intelligence buildout.
“None of these are new, but given the elevated expectations and positioning of investors, the bar for positive surprises has risen, and the sensitivity to the wall of worry has intensified,” he added.
“We don’t currently see bond market turbulence as a reason to reduce equity market exposure,” said Ulrike Hoffmann-Burchardi at UBS Chief Investment Office. “It does, however, reinforce the case for diversified equity exposure.”
A failure in the Treasury’s plan to tame long-term yields would pressure the dollar and spur short bets against riskier assets in the lead-up to November midterm elections, noted Bank of America Corp.’s Michael Hartnett.
The Treasury chief’s efforts to keep down the long-end of the yield curve provided a clear signaling mechanism, said Stephen Brown at Capital Economics. He’ll presumably be hoping Federal Reserve Chair Kevin Warsh “doesn’t undo his work during his Jackson Hole speech next week,” Brown added.
Allspring Global Investments’ Ann Miletti said Wall Street has more to worry about from the Jackson Hole economic symposium than earnings from Nvidia.
“The thing that we try to stay focused on with all the craziness going on is what you can control,” said Miletti. “Looking at companies from a bottom-up perspective, really understanding what companies have the balance sheet and the flexibility to kind of get through any environment — that’s really where we’re focused, and that’s what we have control of.”
