Stocks Give Way Under Dual Pressure of Rising Yields and Oil
Our Views
- I don’t think we are alone in wondering why there has been a surge of hawkishness lately. Even former Fed Governor Miran has wondered: On Fox News, Miran stated, “As the inflation data have been getting better, the Fed has bizarrely been getting more hawkish…. It’s very confusing.”
- Sentiment has become solidly bearish. Unlike the rallies of 2024 and of 2025 where AAII sentiment turned net bullish, investors have remained staunchly bearish in 2026 (see below). But more importantly, investors are never bearish at the top; thus, we argue we are not near a near-term top, yet.
- Oil and yields have been pushing higher. In fact, as oil has risen, so have odds of a Sept hike. While this remains problematic, the U.S. consumer is not at the breaking point from these higher oil prices. We realize this is a contrarian take. Many investors are cautious about September. But we believe it is this exact cautiousness, particularly the fact that many cite seasonals, as the reason to think a lot of bad news is priced in.
- WTI crude pushed above $100 on Middle East supply fears on Thursday, and Treasury yields moved up to within striking distance of October 2023 peaks. Neither can be dismissed, but both are showing DeMark exhaustion on daily and weekly charts, and the 30-year term premium has been contracting since mid-August, which suggests this bond selloff is likely oil related, not fiscal.
- Breadth has deteriorated over the last five weeks in most sectors outside of Technology, but Tech has stabilized and is trading better over the last couple of weeks, which remains a tailwind for the cap-weighted indices.
- Bottom line, this pullback has reached levels where it’s right to start buying, and I expect indices to bottom between Friday and next week’s FOMC meeting with Technology leading the charge back toward the highs while the broader market lags; a more well-rounded advance likely waits until mid-November. I’ll discuss more with charts and commentary in today’s report.
- The big data point Thursday was PPI, which offered something for both hawks and doves. Headline PPI remained firm, while core PPI came in somewhat better than expected, albeit against a July reading that was revised higher.
- Beneath the surface, much of the pressure in core PPI was concentrated in transportation-related categories. Passenger transportation rose 4.1% MoM and freight/warehousing increased 1.7%, while the broader goods and services components looked considerably more benign.
- A meaningful portion of services actually posted negative monthly readings. As always, there is some danger in selectively excluding the components we don’t like, but the underlying composition was arguably less inflationary than the headline suggested.
- Congress returns next week, and one anticipated highlight is a cloture vote on the Clarity Act
- The debate around this crypto legislation is going to revolve around perception of the Trump family’s recent crypto profits, which have become a political issue.
- The midterm elections are coming up, and both parties seem to be growing more optimistic about the various Senate races in aggregate.
Wall Street Debrief — Weekly Roundup
Key Takeaways
- The S&P 500 edged down 0.8% to 7,656.98 points this week, while the Nasdaq Composite tumbled 0.7% to 26,333.04. Bitcoin was at USD 77,382.53 on Friday afternoon.
- Fundstrat Head of Research Tom Lee still expects the Federal Reserve will hold rates steady next week.
- Head of Technical Strategy Mark Newton said that he is not really worried about the slight decline in market breadth.
“If we learn nothing else from this tragedy, we learn that life is short and there is no time for hate.” — Sandy Dahl, wife of Flight 93 pilot Jason Dahl.
Good evening,
Stocks posted weekly losses, with investors no longer able to look past the double hit of higher government bond yields and oil prices.
The S&P 500 lost 0.8% this week, with nine of the 11 sectors in the red. Only energy and communication services finished in the green. The broad-based index is off 1.8% from its all-time highs hit about a month ago.
Since yields on longer-dated government bonds started climbing in late August, stocks have surprisingly held their own, but it seems like this week a new pressure point was hit. The 10-year Treasury yield rose to 4.969% on Thursday, the highest level since October 2023’s 4.989%. Higher yields reduce the value of corporations’ future earnings, and the 5% level can be particularly damaging because that’s when stock valuations get compressed, according to historical data.
Treasury Secretary Scott Bessent has been trying hard to rein in the longer-dated yields. On Wednesday, the Treasury Department announced that it will buy back $6 billion of longer-dated bonds. Some investors were expecting it to be much larger, while others have criticized the proxy intervention, which has nevertheless failed to tamp down the increase in yields.
There was no relief on the oil front, either. U.S. crude oil prices jumped past the $100 a barrel mark on Thursday, which hasn’t been seen since May. More attacks were exchanged between the U.S. and Iran, and reports indicate that top White House advisers have informed President Trump that there’s a possibility the war goes through the remainder of his term. For markets, this means higher oil prices are here to stay, adding pressure on an already strained consumer’s wallet.
That’s why this week’s consumer-price index report was so closely watched. It was expected to be the data point that could have easily made the case for an interest-rate hike or clearly point to a pause. On Friday, it showed that headline inflation in August rose 3.4% from a year ago, coming in line with expectations, but core inflation increased 0.3% from a month ago, which was higher than economists were expecting.
The odds of a hike at the Fed’s meeting next week shot up past 85%, up from 59% a week ago, according to CME’s FedWatch tool.
Fundstrat Head of Research Tom Lee, however, is still of the view that the Fed will hold, as he once again revisited his core case for why inflation has peaked in his Macro Minute video this week. He highlighted that the elevated level of core personal-consumption expenditures price index is due to distortions from flash memory and stock prices, and without those two, core PCE is much closer to the 2% inflation target.
Another reason? Lee believes that gasoline prices aren’t as bad as they’ve been during previous turbulent periods.
“In the 1980s during the oil embargo, gasoline was 6.5% of your wallet. During the run-up into the global financial crisis with the China supercycle, it got to 4.5%, and with the Iran war, it’s sitting at 2.2%, so I still think the odds are toward no hike,” he said.
Our Chart of the Week has more details:
Lee said a “face-ripper” rally could be imminent after the inflation data. If Friday’s performance is any guide, that prediction could turn out to be true. The S&P 500 added 0.9%.
Sentiment data has also been staunchly bearish, giving Lee more confidence in his bullish contrarian thesis.
“In 2023 and 2024, investors were bullish the entire time on AI. In the 2025 rally, investors turned bullish, but so far this year, during this entire rally period, investors have been mostly bearish. It has been one of the most-hated V-shaped rallies,” he said.
He is sticking to his top picks: crypto, energy, and downstream AI trades like the Magnificent Seven, software, and ethereum. He also likes small caps.
Head of Technical Strategy Mark Newton expects there will be some relief in the bond market and in crude prices over the next 3-5 days. He expects that will coincide with markets turning back higher.
Newton has been keeping a close eye on the nascent declines in the consumer discretionary, healthcare, and financials sector, while tech has recovered.
“The fact that tech is strong is great, but all these other groups are falling, so it’s weighing on near-term market breadth,” he said during the weekly huddle. “You've seen a little bit of a backing and filling, but I don't think it's really all that meaningful overall.”
He expects the back half of September to be “very good” for equities into October.
Elsewhere
A high-profile resignation at Anthropic has sparked renewed urgency in Washington over AI safety regulation. Pretraining researcher Jacob Coxon walked away from his stock options to quit the lab, publicly accusing top tech companies of "gambling with our lives" in a blind sprint toward self-improving superintelligence. The warning—backed by Anthropic’s own alignment team—helped spur immediate legislative pushback, with lawmakers introducing a bill to pause advanced AI development until a dedicated federal oversight agency can be established.
Germany’s political establishment was rocked after the far-right Alternative for Germany (AfD) secured a sweeping victory in Saxony-Anhalt's state parliamentary election, claiming over 43% of the vote. Led regionally by social media figure Ulrich Siegmund, the nationalist party more than doubled its 2021 results, dealing a major blow to Chancellor Friedrich Merz’s center-right Christian Democratic Union. While falling just three seats shy of an absolute majority, the AfD's historic surge has crippled traditional governing coalitions and intensified pressure on Berlin ahead of upcoming regional votes.
Donald Trump raised eyebrows across Capitol Hill after promising to send $5,000 "Trump dividend" checks to every American adult if Republicans retain control of Congress in the upcoming midterm elections. Speaking at the Republican Midterm Convention in Dallas, Trump claimed the massive stimulus proposal—which carries an estimated $1.2 trillion price tag—would be funded by ongoing tariff revenues. While lawmakers like Sen. Bernie Moreno pledged to draft legislation to authorize the payout, economists and fiscal hawks warned that customs collections fall vastly short of covering the cost, drawing sharp pushback over the plan's potential impact on the national debt and inflation.
The European Central Bank raised its key interest rate by 25 basis points to 2.50%, warning that geopolitical tensions and volatile energy markets continue to stoke eurozone inflation. According to the ECB's Monetary Policy Statement, the decision pushes borrowing costs to the top edge of the neutral range as officials revised next year's inflation forecasts upward.
And finally: The 2026 NFL season kicked off with a historic international opening week as the San Francisco 49ers defeated the Los Angeles Rams 27-7 at the Melbourne Cricket Ground in the league's first-ever regular-season game in Australia. Brock Purdy threw three touchdown passes—including a scoring strike to broad-threat wideout Mike Evans—to lead the Down Under victory.
