Month: August 2026

Softer Inflation Gives Summer Rally a Boost

Softer-than-expected Consumer Price Index (CPI) and Producer Price Index (PPI) readings last week reinforced the view that inflation pressures are moderating. This pushed interest rates lower, particularly the 2-Year Treasury yield.

The bumper crop of earnings that has been announced so far is averaging 30% above expectations—powering stocks to record highs. If this level remains as the actual “beat number” for the quarter, it will mark the highest earnings surprise reported by the S&P 500 index since FactSet began tracking this metric in 2008. Earnings are up 51% year-over-year, putting the index on track for a second consecutive quarter of earnings growth above 25% and a seventh consecutive quarter of double-digit growth. Revenues for the quarter rose more than 15% year-over-year, the strongest pace since the fourth quarter of 2021. Five sectors delivered at least double-digit revenue growth: Energy, Information Technology, Communication Services, Financials, and Real Estate.

Consumer Price Inflation Data Easing

The July CPI report showed headline inflation rising just 0.1% month-over-month and 3.4% year-over-year. The surprise was that the previous month’s reading was revised down to -0.4%. Core CPI (excluding food and energy) advanced 0.2% month-over-month and 2.5% year-over-year, the slowest annual core reading since early 2021. The softer inflation data eased concerns about interest rate hikes later this year.

PPI Confirms the Disinflationary Trend

The Producer Price Index (PPI) came in below expectations, with the month-over-month reading at 0.0% (versus the expected 0.2%) and the year-over-year reading at 4.7% (below the expected 4.9%). PPI excluding food and energy came in slightly above expectations, but the market focused on the softer overall data. Declining energy and food input costs are feeding through to wholesale prices, giving the Federal Open Market Committee (FOMC) additional flexibility on interest rate decisions. The market continues to lower expectations of an interest rate hike this year.

Retail Sales Come in Significantly Below Expectations

July retail sales came in significantly below expectations, declining 0.6% versus expectations for a 0.1% increase. A lower-than-expected number could be due to a drop in sales following the World Cup, which ended on July 19. This surprise is lowering interest rates while pushing out an expected interest rate hike. Federal Reserve Chair Kevin Warsh is believed to be more likely to favor cutting interest rates than raising them, and the latest data increasingly supports that view.

Wage Growth Is Falling Which Should Ease Inflation

Annual growth in weekly earnings of production workers continues to slow. Weaker wage pressures reduce one of the key arguments for additional rate increases and support the outlook for lower front-end yields. Wage growth is a key indicator of future inflation, and slowing wage growth signals that inflation should ease in the months or quarters ahead.

Two-Year Treasury Yields Breaking Down

Last week highlighted that the 2-Year Treasury yield appeared to be breaking down. Confirmation came from the weaker inflation and retail sales data. The target is a move toward 4.0%–3.8%. Lower interest rates are supportive of higher stock prices. Historically, the trend in the 2-Year has foreshadowed the direction of Fed interest rate policy.

The Odds of a Near-Term Rate Hike Are Receding

Market-implied odds of a 25-basis-point hike at the September, October, and December FOMC meetings have retreated sharply following soft inflation reports. September probability has fallen from a mid-July peak near 72% to roughly 32%. The term structure now shows December higher than September, suggesting the market sees a higher chance the Fed skips a hike at the September meeting and potentially acts later, if needed.

Earnings Are Extraordinarily Strong Across Sectors

Ten of the eleven S&P 500 sectors reported positive year-over-year earnings growth in the second quarter. Only the Healthcare sector had a decline in earnings.

• Energy and Communication Services had year-over-year earnings growth above 100%.
• Consumer Discretionary and Technology followed with 92% and 70% earnings growth, respectively.
• Part of the strength in 2Q earnings is coming from tariff refunds.

Revenue Growth Remains Powerful

S&P 500 revenue growth for 2Q26 reached 15% year-over-year, the highest pace since the fourth quarter of 2021. Energy led with more than 40% growth, followed by Information Technology with 36%. Strong top-line expansion provides a solid foundation for continued earnings momentum. Business backlogs have been rising, indicating demand remains strong within the economy.

Net Earnings Revisions Rise Sharply

Analyst net earnings revisions continue to rise substantially, supporting higher stock prices in the months ahead. Seasonally, earnings estimates tend to fall as we move into the third and fourth quarters. Estimates rising sharply now point to the strength of earnings power in this AI-driven business cycle. Revisions to earnings estimates are the strongest models for predicting the direction of stock prices. The rate of increases in earnings estimates for the S&P 500 is a strong confirmation that we remain in a secular bull market. The S&P 500 target for this year is 8,225, raised in June from 7,500.

Market Breadth Confirms Record Highs in Stocks

The S&P 500 cumulative advance-decline line has reached a new all-time high. Broad participation across stocks reduces the risk of a narrow, fragile rally and reinforces the secular uptrend. Commercial and Industrial (C&I) loans are expanding at an 8% annual rate. This indicates ongoing business investment and credit demand, consistent with an expanding economy, even if the pace remains below prior cycle peaks. This is bullish for bank earnings going forward.

Return on Equity Favors Technology

Return on Equity (ROE) is a key measure of how efficiently a company generates profits from shareholders’ capital and one of Warren Buffett’s preferred indicators of business quality. At 33%, ROE among Technology stocks remains substantially higher than the 20% for the broader S&P 500. This differential continues to support the sector’s long-term leadership within the secular bull market.

Technical analysis suggests gold prices have found a base near $4,000. The SPDR Gold Shares ETF (GLD) and related stochastic oscillators point to a very oversold and improving price momentum following the recent correction. The target on Gold remains $5,000, serving as a solid hedge in portfolios.

Junior Gold Miners Offer Leverage to Higher Gold Prices

Gold mining equities, particularly the more leveraged junior producers, stand to benefit if Gold prices resume their advance. The VanEck Junior Gold Miners ETF (GDXJ) shows similar technical oversold conditions, with price momentum starting to turn positive

Disclosures & Disclaimer

Sanctuary makes no representation as to the accuracy or completeness of information contained herein. Any forward-looking statements are based on assumptions, may not materialize, and are subject to change without notice. The information is based upon data available to the public and is not an offer to sell or solicitation of offers to buy any securities mentioned herein. Any investment discussed may not be suitable for all investors. Investors must make their own decisions based on their specific investment objectives and financial circumstances. Investments are subject to risk, including but not limited to market and interest rate fluctuations. Any performance data represents past performance which is no guarantee of future results. Prices/yields/figures mentioned herein are as of the date noted unless indicated otherwise. All figures subject to market fluctuation and change. Additional information available upon request.

Comments regarding cryptocurrencies or cryptocurrency-based securities are for informational purposes only and do not constitute investment advice or a solicitation to buy or sell any cryptocurrency-related product. These products involve significant risks, including high price volatility, evolving regulations, limited market liquidity, and vulnerability to fraud and cyberattacks.

Securities offered through Sanctuary Securities, Inc., member FINRA/SIPC. Advisory Services offered through the SEC registered investment advisers Sanctuary Advisors, LLC and tru Independence. Sanctuary Wealth consists of the wholly owned subsidiaries: Sanctuary Advisors LLC, Sanctuary Securities, Inc., and tru Independence, as well as Sanctuary Alternative Holdings, Sanctuary Asset Management, Sanctuary Insurance Solutions, Sanctuary Global, and Sanctuary Global Family Office.

Weaker Jobs Data, Lower Interest Rates: Earnings Are Abundant & Rotation Continues

The July labor report came in much weaker than expected, driving interest rates lower, while second-quarter productivity improved significantly and far exceeded expectations. Artificial intelligence (AI) may be an important contributor to these stronger productivity gains. Corporate earnings have been superb, driven by actual revenue growth. Margin debt (i.e., borrowing to buy stocks) likely eased in July as Technology stocks, particularly Semiconductors, pulled back. Even so, market rotation has broadened leadership and helped propel the S&P 500 to record highs — a seasonal pattern common during the summer months. The combination of market rotation and new highs indicates a strong bull market.

In July, we raised our year-end S&P 500 target to 8,225. From a technical perspective, the recent breakout to new highs points toward 7,900–8,000. We do expect volatility to continue, so maintaining a balanced portfolio remains as important as ever.

Earnings & Revenue Growth

Second-quarter results are mind-bending. Energy led all sectors with estimated year-to-year earnings growth of 147.0%, helped by elevated refining margins. Communication Services grew 117.0% on cloud and AI monetization gains, helped by Alphabet (GOOGL), while Information Technology grew at 70.4% on a clean sweep of earnings beats in Hardware and Semiconductors. Materials rose 41.7% on higher commodity prices and industrial demand. Healthcare lagged at -6.7%.

By the end of last week, 88% of S&P 500 companies had reported results. So far, overall earnings growth is running at 50.4%, an exceptionally strong pace, particularly given that the economy appears to be in the mid-to-late stage of the business cycle. That strength in corporate earnings growth provides a solid fundamental foundation for the market’s record highs, even as markets continue to navigate the conflict with Iran and the resulting higher oil prices.

The earnings surge is genuine. Revenue growth accelerated by nearly 5%, while profit margins expanded at one of the fastest rates excluding the pandemic and the Global Financial Crisis (GFC). Even after filtering out unrealized investment gains, the data continue to show robust underlying earnings growth.

We continue to believe the economy remains in the Inflation Boost phase, a concept we introduced in our May Monthly Report, in which moderate inflation supports pricing power, revenue growth, and ultimately stronger corporate earnings.

Labor Market & Productivity

• Surprising Softness: The July jobs report showed a loss of 23,000 positions against expectations of an 80,000 gain. Prior months were also revised lower. July seasonal adjustments are notoriously hard to model because of school calendars and summer patterns. The data also shows the unemployment rate remains low at 4.1%.
• Low-Hire, Low-Fire Dynamic: The data indicate a low-hire, low-fire environment rather than widespread layoffs. Emigration has replaced strong immigration flows. An aging population with Baby Boomers retiring continues to reduce the share of people working or looking for work.
• Rate Case Softens: This softens the case for near-term rate increases by the Federal Reserve (Fed). It also underscores the importance of productivity to economic growth.
• Productivity Surge: Second-quarter productivity rose 1.4% at an annualized rate, well above analysts’ expectations of 0.6%. We had anticipated continued improvement in productivity; many on Wall Street had not. We believe that AI is beginning to lift output per worker. Higher productivity helps companies grow profits without adding as many employees, supporting earnings strength.

Deleveraging, Speculation, & Sector Turning Points

Margin debt relative to the Wilshire Index climbed from 1.43% in September 2024 to 2.05% in June 2026, signaling increased speculation. As Technology stocks, particularly Semiconductors, corrected sharply during July, margin debt likely declined as investors reduced leverage. Even so, margin debt remains low relative to historical levels, which reduces the risk of forced selling during market stress.

Semiconductors Near A Turning Point Semiconductor stocks have experienced a 20%–30% correction driven by deleveraging. The sell-off has made valuations in the sector more attractive, and Semis now trade at a lower forward price-earnings multiple than the broader market. Semis responded to the short-term near oversold reading we highlighted last week. The weekly stochastic has not yet generated a buy signal, though we believe conditions are approaching one and remain bullish on the sector.

Metals and Mining Bottoming We believe Gold and Silver have bottomed. Copper continues to look stronger because of real demand from data-center construction, re-industrialization, and electric power needs. Industrial metals exposure offers a direct way to participate in physical demand tied to technology infrastructure.

Market Breadth & Global Outlook

The global secular bull market continues. The iShares MSCI EAFE ETF (EFA), which tracks developed markets outside the United States and Canada, has reached a new all-time high. The MSCI Emerging Markets ex-China Index (EMXC) remains in an uptrend following its recent correction.

Domestically, the Russell 2000 and the equal-weighted S&P 500 both hit new all-time highs. Sector rotation has lifted prices across more of the market while Technology and Semiconductors worked off earlier overbought positions. Broad participation provides a healthier foundation for sustained gains than narrow leadership by a handful of giant companies.

Sector Performance & Oversold/Overbought Readings

• Top Sectors: Information Technology returned to 1st place last week, followed by Healthcare (2nd) and Energy (3rd).
• Bottom Sectors: Utilities dropped to last place (11th), followed by Communication Services (10th) and Consumer Staples (9th).
• Overbought Conditions: Healthcare and Financials.
• Oversold Conditions: Communication Services and Consumer Discretionary (Consumer Staples and Utilities are near oversold).

Inflation Takes Center Stage

This week delivers important data on inflation and interest rate expectations:

• Wednesday: July Consumer Price Index (CPI) and Core CPI.
• Thursday: Producer Price Index (PPI).
• Friday: Advance Retail Sales.

Together, these reports will provide crucial signals on economic health, Fed policy, and the trajectory of interest rates while corporate earnings wrap up.

Disclosures & Disclaimer

Sanctuary makes no representation as to the accuracy or completeness of information contained herein. Any forward-looking statements are based on assumptions, may not materialize, and are subject to change without notice. The information is based upon data available to the public and is not an offer to sell or solicitation of offers to buy any securities mentioned herein. Any investment discussed may not be suitable for all investors. Investors must make their own decisions based on their specific investment objectives and financial circumstances. Investments are subject to risk, including but not limited to market and interest rate fluctuations. Any performance data represents past performance which is no guarantee of future results. Prices/yields/figures mentioned herein are as of the date noted unless indicated otherwise. All figures subject to market fluctuation and change. Additional information available upon request.

Comments regarding cryptocurrencies or cryptocurrency-based securities are for informational purposes only and do not constitute investment advice or a solicitation to buy or sell any cryptocurrency-related product. These products involve significant risks, including high price volatility, evolving regulations, limited market liquidity, and vulnerability to fraud and cyberattacks.

Securities offered through Sanctuary Securities, Inc., member FINRA/SIPC. Advisory Services offered through the SEC registered investment advisers Sanctuary Advisors, LLC and tru Independence. Sanctuary Wealth consists of the wholly owned subsidiaries: Sanctuary Advisors LLC, Sanctuary Securities, Inc., and tru Independence, as well as Sanctuary Alternative Holdings, Sanctuary Asset Management, Sanctuary Insurance Solutions, Sanctuary Global, and Sanctuary Global Family Office.

Fed Policy, Economic Growth & Sector Trends

The Federal Open Market Committee (FOMC) voted 9 to 3 to keep the federal funds rate in a range of 3.50% to 3.75%. The three dissenters are known hawks — policymakers who favor higher interest rates to fight inflation more aggressively.

Federal Reserve (Fed) Chair Kevin Warsh said the Committee remains fully committed to its 2% inflation goal and will not accept a higher target. He noted that, since the last FOMC meeting, markets have already tightened financial conditions on their own and that business investment, especially in technology, remains strong.

Reporters Play Hardball With Fed Chair On Interest Rates

Seven of the nine reporters who posed questions to Fed Chair Warsh after the latest policy meeting took an unusually confrontational approach. They repeatedly asked why rates were raised immediately, challenged the decision to hold rates steady, and showed far less deference than is customary for a Fed chair. (Yes, new Fed Chairs are always tested, but this seemed especially strident.)

Even the more measured questions from Nick Timiraos of The Wall Street Journal and Brian Chung of NBC carried a sharper edge to their questions than usual. In response, Warsh noted that he has held the job for only 8½ weeks while inflation has run above the Fed’s 2% target for more than five years.

Imports And Lower Government Spending Held Back Second-Quarter Growth

Second-quarter economic growth came in softer than most analysts expected. The official measure of total U.S. output, Gross Domestic Product (GDP), rose at only a 1.5% annual rate, lower than the expected 1.8%. Consumer spending stayed solid and continued to support the economy.

The weaker headline number was caused mainly by a larger-than-expected jump in imports and a small drop in government spending. Imports are subtracted from the GDP calculation, and they surged, which pulled the overall growth rate lower — even though American households kept spending.

AI Investment Rose, but Technology Imports Offset Much of the Gain

Companies spent heavily on artificial intelligence (AI) equipment and data center capacity in recent quarters. That capital investment normally adds to economic growth. At the same time, a large share of the servers, chips, and related gear was imported. Imports reduce the GDP total, so the investment boost and the import drag largely canceled each other out. In one recent quarter, the two forces were almost equal in size.

Core Consumer Prices Cooled, but Broader Inflation Pressures Reappeared

The Fed’s preferred inflation gauge, the core Personal Consumption Expenditures (PCE) price index, continued to match what economists had forecast and showed further cooling in June. That softer reading gave the Fed room to leave interest rates unchanged.

In contrast, the broader GDP price index, which covers all goods and services produced in the United States, accelerated to a 6.2% annual rate in the second quarter (up from its earlier peak of 9.4% in 2022). Two forces drove this increase:

• Energy Prices: Rose sharply due to ongoing conflict with Iran and related shipping disruptions.
• AI Import Volume: Reduced real GDP and, by simple arithmetic, pushed the price deflator higher.

Market Technicals: S&P 500 & Semiconductors Oversold

• S&P 500 Index: Had a 5% correction off its high, creating an oversold 14-day Stochastic reading while holding key support levels. The index needs to respond to this oversold level to avoid another leg down.
• Semiconductor Sector (SMH): The VanEck Semiconductor ETF corrected 25%, creating an oversold condition. Similar to the 1990s Dot-Com period (which saw 30%-50% pullbacks during an ongoing bull trend), semiconductors remain leaders of this secular bull market.
• WTI Crude Oil: Prices remain range-bound between the 100-day moving average ($90) and 200-day moving average ($76), indicating elevated energy costs ahead.

Disclaimer: Securities offered through Sanctuary Securities, Inc., member FINRA/SIPC. Advisory Services offered through SEC registered investment advisers Sanctuary Advisors, LLC and tru Independence. Information is based on public data and is not an offer to sell or buy securities. Past performance is no guarantee of future results.