Third-quarter earnings season is officially underway, with major banks kicking off reporting. Analysts have consistently raised earnings estimates throughout the year, as higher energy prices have not had a significant impact on corporate profits.
S&P 500 Earnings Growth: Analysts expect S&P 500 earnings to increase nearly 30% year over year for the quarter.
Leading Sectors: Energy, Information Technology, and Communication Services are expected to deliver the strongest earnings and revenue growth.
Year-End S&P 500 Forecast: Maintained at 8,225, representing a 6% move higher from current levels.
Earnings & Valuation Highlights
Earnings & Revenue Growth
Robust Growth: Corporate earnings and revenue growth remain extremely strong, led heavily by the Technology and Energy sectors.
S&P 500 Valuation (2027 Outlook)
Forward P/E Ratios:
The S&P 500 trades at an estimated 12-month forward P/E ratio of 19.0x according to FactSet.
Bloomberg estimates the index at 18.5x based on year-end 2027 earnings, which are considered reasonable valuation levels.
Technology Valuations: Technology trades at 19.2x year-end 2027 earnings. Given its strong growth metrics, Tech stocks can be considered attractive and relatively cheap.
Market Dynamics & Leadership
Market Volume & Technicals
Volume Improvement: Net volume (up volume minus down volume) weakened to historical bottom-signaling levels before up volume began exceeding down volume last week.
Seasonal Rallies: A year-end rally traditionally begins the last week of October, supporting the ongoing equity rally.
The “Magnificent 7” Breakout
Leadership Resumes: After consolidating from September 2025 through mid-summer 2026, the Magnificent 7 have broken out to new record highs, driven by artificial intelligence (AI) growth.
AI Infrastructure Supercycle:
A Brookings Institution study estimates the total U.S. AI infrastructure buildout (data centers, power, networking, hardware) will cost $10.3 trillion from 2025 through 2032—averaging 3.6% of U.S. GDP annually.
This dwarfs historical booms like 19th-century railroads (2.2%), the 1950s interstate highway system (1.1%), and the early-2000s telecom boom (1.1%).
Hyperscalers are increasingly funding this enormous buildout via leases, joint ventures, project debt, and private credit rather than solely relying on internal cash flow.
Market-Weighted vs. Equal-Weighted S&P 500
Market-weighted indices continue to outperform equal-weighted counterparts, though the degree of outperformance remains well below the early-2000 Dot-Com peak.
Macroeconomic & Fixed Income Trends
Consumer Spending Resilience
Bank of America data across 70 million customers shows total household card spending rose 6.2% year-over-year in September (5.1% excluding gasoline), supported by low unemployment.
Treasury Yields & Sentiment Signals
Decades-Long Highs: Treasury yields have climbed to levels comparable to 2003 and 2007 (10-year) and 2023 (2-year) due to economic strength, inflation concerns, and fiscal deficit/data center financing needs.
Contrarian Bond Opportunity: Bond bullishness has fallen to the 5th percentile over the last 10 years. This extreme bearish sentiment suggests bond prices may be near a bottom, paving the way for lower yields and a tailwind for stocks.
Inflation Expectations & Fed Policy
Survey Expectations: The NY Fed’s 1-year expected inflation rate rose to 3.90% (above the 3.68% forecast).
Market Breakeven: 2-year TIPS breakeven remain stable at 2.55%.
Fed Rate Outlook: Fed funds futures price in a <20% chance of a rate hike at the October meeting, but nearly a 99% probability for December.
Financial Innovation & Energy Markets
Tokenized Stock Trading Begins
Securitize (SECZ) launched on chain trading of 1:1 stock-backed securities on the Solana blockchain for eligible investors, covering major equities (AAPL, MSFT, NVDA, GOOG, TSLA, META, AMZN, NFLX, CRCL, MSTR, PLTR) and private SpaceX (SPCX) entitlements.
The SEC introduced an “Innovation Exemption” for tokenized venues, with exchanges like NYSE, Nasdaq, and OKX/ICE planning implementations.
Energy & Commodity Insights
Refinery Efficiency: The number of U.S. refineries has halved since 1982, but individual productivity has pushed refinery crude output to all-time highs.
Gasoline Demand: Domestic gasoline consumption has stagnated and declined due to increased fuel efficiency and EV adoption.
SPR & WTI Oil: The Strategic Petroleum Reserve (SPR) has dropped by over 130 million barrels since February, while WTI crude oil prices remain range-bound between $80 and $100 per barrel.
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.
Executive Takeaway: September is historically the worst performing month for stocks, with an average S&P 500 decline of 2.6% over the past five years. This year, the S&P 500 fell only 0.45% while the tech-heavy Nasdaq 100 rallied 3.2%. October is traditionally a strong buying month, with seasonal year-end rallies typically beginning in late October. With S&P Technology breaking out to new record highs, signals suggest the year-end rally may already be underway.
September Outperforms Historical Norms as Tech Breaks Out
Despite seasonal headwinds, equity markets held up remarkably well through September.
Historical Outperformance: While September averages a 2.6% decline for the S&P 500 over the past five years, the index lost just 0.45% this September.
Tech Leadership: The Nasdaq 100 gained 3.2% in September, propelled by major technology constituents.
Record High Breakout: The State Street Technology Select Sector SPDR ETF (XLK) broke out to a new record high of 201.39 before closing near 199.81, serving as a powerful confirmation of the ongoing secular bull market.
Employment Report Showed Weakness In September
Following the FOMC’s 25-basis-point rate hike on September 16, Friday’s Nonfarm Payrolls report called into question the central bank’s assumption that economic expansion is unthreatened.
Payroll & Unemployment Softness: September nonfarm payroll growth came in weaker than expected, and the unemployment rate ticked up 0.1% to 4.2%.
Household Survey Divergence: Civilian employment from the Household Survey—which captures farmers, self-employed individuals, and sole proprietors (~4 million more workers than nonfarm payrolls)—showed even greater deceleration. Because the Household Survey is more sensitive to turning points in the economic cycle, it signals broader labor cooling.
Structural Labor Shifts: Immigration trends and baby boomer retirements are reshaping the worker pool, requiring strategists and policymakers to re-evaluate traditional labor market models.
The Bear Is Visiting The Bond Market, But Inflation Is Easing
Fixed income markets continue to experience upward yield pressure across the curve.
10-Year Yield Peak: The 10-year Treasury yield touched 5.23%, its highest level since June 2007. Over the past year, as 10-year yields surged from 4.08% to 5.23% (+115 bps), a 10-year duration bond lost 10%–12% in price.
Rate Normalization: Yields between 0% and 3% were historically abnormal; a range of 5%–6% reflects the longer-term historical average for long-term Treasury rates. Unless 10-year yields break decisively above 2007 highs toward 6.0%, rates should hold near current levels following softer labor data.
Softer PCE Inflation: Personal Consumption Expenditures (PCE) and Core PCE (3.0% YoY) came in softer than expected after data revisions.
2-Year Yield Level: The 2-year Treasury yield (4.7955%) is holding below key resistance at 5.0%, pricing in one final Fed rate hike in December.
3Q26 Earnings Season Forecast: EPS Up 29.5%
As third-quarter earnings season begins, analyst estimates have been revised upward at an above-average pace.
Strong Growth Momentum: S&P 500 year-over-year earnings growth for 3Q26 is forecast at 29.5% (up from 26.7% estimated on June 30), marking the third consecutive quarter above 25% EPS growth.
Sector Leaders: All 11 GICS sectors are expected to report positive growth, led by Energy (+114.0%), Information Technology (+65.0%), Communication Services (+51.5%), and Materials (+29.4%).
Calendar Year Expectations: CY 2026 S&P 500 earnings growth is projected at 32.4%, supporting Sanctuary’s S&P 500 year-end target of 8,225 and long-term target of 10,000–13,000.
All-Time High Profit Margins: Corporate profits as a percentage of GDP have reached an all-time high in data extending back to 1945, providing fundamental support for equity valuations.
Key Market Levels & Indicators Summary
Indicator / Asset
Last Price / Yield
Context & Performance Highlights
S&P 500 Index
7,722.72
YTD: +12.8% | Held strong through September (-0.45%)
NASDAQ Composite
27,190.86
YTD: +17.0% | Strong tech sector support
NASDAQ 100 Index
749.58
YTD: +22.0% | Up +3.2% in September
Russell 2000 Index
2,832.90
YTD: +14.1% | Up +1.3% in MTD
10-Year Treasury Yield
5.2300%
Highest since June 2007; normalizing in 5%–6% range
2-Year Treasury Yield
4.7955%
Holding below 5.0% technical resistance
Core PCE Inflation (YoY)
3.0%
Fed’s preferred inflation metric came in softer than expected
Eased off peak ($6.528) following G7 emergency stock release
Bitcoin
$84,436.89
YTD: +3.7% | YoY: +30.1%
Gold
$4,141.19 / oz
YTD: +4.1% | Holding above $4,100
Consumer Spending Resilient as G7 Coordinates Emergency Oil Release
While consumer sentiment showed softness, actual household spending behavior remains surprisingly strong.
Confidence vs. Action: Conference Board Consumer Confidence dropped from 88.6 to 81.9 in September due to elevated fuel prices. However, real consumer spending rose YoY in August.
Income Tier Strength: Bank of America credit card data confirms solid spending growth across all income brackets, with lower-income cardholders showing stronger growth than middle- and upper-income cohorts.
Holiday Forecast: The Mastercard Economics Institute predicts total U.S. holiday retail sales (excl. gas/autos) will grow +5.5% YoY, led by an +11% surge in e-commerce.
Freight & G7 Action: Freight costs remain up >16% YoY due to diesel costs. In response, the G7 and IEA announced a coordinated emergency release of 100 million barrels of oil and diesel over four months, initially prioritizing diesel supply to cap shipping inflation.
AI Infrastructure Buildout, Space-Based Data Centers, & Anthropic Mega-IPO
Secular technology investment continues to accelerate across new frontiers.
Semiconductor Supply Deficits: ISM manufacturing data underscores persistent shortages in semiconductors, memory (DRAM), and electrical equipment. Backlogs are rising, and the VanEck Semiconductor ETF (SMH) reversed its downtrend to reach 617.81 as it tests record highs.
Data Centers in Orbit: To bypass power grid capacity limits and water cooling constraints, SpaceX (SPCX) launched Alphabet’s (GOOGL) AI TPU chip into Earth orbit. Space data centers leverage continuous solar energy and natural space cooling.
Anthropic Mega-IPO: Reports indicate AI pioneer Anthropic is preparing for an initial public offering as early as mid-November, with formal marketing starting the week of November 9 and trading expected before Thanksgiving.
Sector Model Readings & Overbought / Oversold Oscillator Status
Information Technology retained the top spot in Sanctuary’s sector model, followed by Energy and Healthcare. Utilities remains the main laggard for the ninth consecutive week.
Sector
Current Rank
13-Week Rate of Change Oscillator Status
Information Technology
1
Overbought (+1.1974)
Energy
2
Overbought (+1.6244)
Healthcare
3
Neutral (-0.3599)
Communication Services
4
Neutral (-0.1690)
Industrials
5
Oversold (-2.6399)
Materials
6
Oversold (-1.2029)
Financials
7
Oversold (-1.0897)
Consumer Staples
8
Oversold (-1.2331)
Consumer Discretionary
9
Oversold (-1.4755)
Real Estate
10
Oversold (-1.4601)
Utilities
11
Oversold (-2.0612)
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.
Executive Takeaway: Despite higher interest rates and persistently elevated oil prices, the S&P 500 remains within 1% of its all-time high. Following the FOMC’s 25-basis-point rate hike, several Federal Reserve officials reinforced their hawkish stance, while manufacturing and services data came in stronger than expected. Ongoing geopolitical tension with Iran has kept WTI crude above $90 per barrel, and national diesel prices reached a record $6.50 per gallon. Meanwhile, technology leadership and a Bitcoin breakout signal that risk appetite remains firmly intact.
The 10-Year Treasury Yield Has Passed 5% — What’s Next?
The 10-year Treasury yield has climbed past 5% (testing 5.18%), driven by stronger-than-expected S&P Global manufacturing and services PMI readings, elevated oil prices, a weak 5-year Treasury auction, and persistent fiscal deficit concerns.
Key Technical Threshold: The 10-year yield is now testing 5.18% and approaching 5.3%, a level last seen in 2007.
Market Impact: If yields remain below 5.3%, long rates could retreat somewhat. However, a sustained break above 5.3% could spark broader market fears that yields are heading toward 6%.
Valuation Squeeze: Higher long-term yields continue to put pressure on equity valuations, particularly for small-cap stocks (Russell 2000 down 8%) and other rate-sensitive sectors.
Strong Economic Data Keeps Further Fed Rate Hikes In Play
Strong economic data releases reinforce the growth narrative while keeping central bank tightening on the table.
PMI Strengths: S&P Global manufacturing rose to 57.0 and services reached 54.7, pushing the composite index to a five-year high. Manufacturing strength was heavily buoyed by demand from the AI and defense sectors.
Policy Flexibility: These robust activity numbers support ongoing corporate earnings growth while giving the Fed ample room to execute another rate hike if inflation remains sticky.
Market Pricing: Futures markets are currently pricing in a high probability of another 25-basis-point rate hike by December.
Higher Oil Prices Keeping Pressure On Treasury Yields
Geopolitical developments in the Middle East continue to drive energy volatility and fixed-income yields.
Strait of Hormuz Talks: As world leaders convened at the United Nations, Iran proposed reopening the Strait of Hormuz on its terms. White House officials initially called discussions “productive,” but negotiations appeared to break down over the weekend.
Oil-Yield Correlation: WTI crude oil remains above $90 per barrel ($93.04). Oil prices and 10-year Treasury yields continue to move in tight lockstep. Any pullback in crude could offer yield relief, whereas a renewed crude rally will keep yields elevated.
2-Year Yield Signal: The 2-year Treasury yield climbed to 4.85%, reflecting clear market expectations for additional Fed tightening before year-end.
The Treasury Curve Is Bear-Flattening
The yield curve is undergoing a classic bear-flattening structure as short-term rates rise faster than long-term rates.
2s-10s Spread: The spread between 2-year and 10-year Treasury yields has narrowed to 28 basis points (0.28%).
Economic Implication: This flattening pattern indicates that investors anticipate further monetary tightening and potentially slower future economic growth, even as inflation and fiscal deficit expansion anchor long yields at elevated levels.
Key Market Levels & Indicators Summary
Indicator / Asset
Last Price / Yield
Technical Context & Key Levels
S&P 500 Index
7,686.14
Within 1% of all-time high
Russell 2000 Index
2,810.00
Down 8% due to rate pressure on small caps
10-Year Treasury Yield
5.1856%
Testing levels last seen in 2007; key resistance at 5.3%
2-Year Treasury Yield
4.8536%
Pricing in another Fed rate hike before year-end
2s-10s Spread
0.2800% (28 bps)
Bear-flattening yield curve
WTI Crude Oil
$93.04 / bbl
Remains above $90; tightly tied to 10Y yield
National Average Diesel
$6.50 / gal
Record high; inflating transportation costs
S&P Global Mfg PMI
57.0
5-year high driven by AI & Defense demand
S&P Global Services PMI
54.7
Solid expansion; exceeded market expectations
Bitcoin
$84,157.50
Broken out of 8-month base; signaling crypto winter end
Despite rising rates, secular growth drivers continue to power leadership sectors.
Low Correlation to Rates: Since 1990, weekly data show a correlation of only 0.034 between Technology stock performance and the federal funds rate. Earnings growth and secular trends exert a far greater influence than central bank rate decisions.
Magnificent 7 & Semiconductor Breakouts: The Magnificent 7 Index reached new all-time highs, while the VanEck Semiconductor ETF (SMH) broke above its intermediate downtrend to resume its primary uptrend. Tech, AI infrastructure, chips, and cybersecurity continue to lead.
Bitcoin Breakout: Bitcoin broke out of an eight-month consolidation base and is testing that breakout near $84,157. Broad strength across Bitcoin, semiconductors, and big tech confirms strong underlying risk appetite and liquidity, signaling an official end to the “crypto winter”.
Midterm Elections Are Beginning To Affect Sector Performance
With the U.S. midterm elections just over five weeks away, political forecasting is impacting sector allocation.
Developing Democratic Wave: Strategas analyst Dan Clifton notes that political conditions closely mirror the 2006 midterm election cycle. A second-term president facing low approval ratings due to Middle East conflict and high gasoline prices creates a setup similar to 2006, when Democrats gained 31 House seats and 6 Senate seats.
Affected Sectors: Shifting election expectations are actively driving performance in Industrials, Real Estate, Financials, Defense, Energy, and Healthcare.
Sector Model Readings & Overbought / Oversold Oscillator Status
Information Technology reclaimed the top spot in Sanctuary’s sector momentum model, while Utilities remains the primary laggard for the eighth consecutive week.
Sector
Current Rank
13-Week Rate of Change Status
Information Technology
1
Near Overbought (+0.7930)
Energy
2
Overbought (+1.0919)
Healthcare
3
Neutral (+0.1029)
Communication Services
4
Neutral (+0.4898)
Financials
5
Neutral (-0.4470)
Materials
6
Near Oversold (-1.1099)
Industrials
7
Oversold (-2.7071)
Real Estate
8
Oversold (-1.6589)
Consumer Staples
9
Oversold (-1.2250)
Consumer Discretionary
10
Oversold (-1.3009)
Utilities
11
Oversold (-2.4977)
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.
The Federal Open Market Committee (FOMC) unanimously voted to raise the target federal funds rate range by 25 basis points to 3.75%–4.00%. The latest dot plot reveals that 16 out of 18 committee forecasters anticipate another rate hike before year-end.
Core Rationale: Chair Warsh cited solid labor market metrics, elevated inflation trends, and geopolitical instability as key drivers behind the decision.
Policy Stance: Chair Warsh downplayed the neutral rate as an “academic” concept, noting current financial conditions are not overly restrictive. The Fed’s strategy in 2026 focuses on clawing back the accommodation provided during 2025’s rate cuts.
Capital Competition: Aggressive capital deployment by technology hyperscalers (funding massive AI data center infrastructure) is driving up competition for capital and contributing to upward pressure on Treasury yields.
Global Synchronization: Price pressures are widespread globally, with central banks such as the European Central Bank (ECB) already embarking on monetary tightening cycles.
Market Expectations & Interest Rate Outlook
Futures markets are currently pricing in more tightening than outlined in the Fed’s Summary of Economic Projections (SEP) median target of 4.1% for year-end 2026.
Hike Probabilities: Fed funds futures indicate a 53% probability of a 25 bps rate hike at the October 28 meeting. If rates remain unchanged in October, the implied probability of a December 9 rate hike surges to 76%, with further hikes projected into 2027.
Yield Curve Pressure: Rates surged across the curve following sticky CPI and PPI data alongside elevated energy costs. The 2-year Treasury yield jumped to 4.7% (testing critical resistance between 4.7%–5.0%), while the 10-year Treasury yield tested 5.0% before closing at 4.996%.
“Three Steps and a Stumble”: Historical equity market behavior demonstrates that it typically takes multiple rate hikes before stock bull markets stumble—a threshold the current market has not reached.
Rate-Insensitive Tech Leadership: Information Technology relative performance exhibits virtually no correlation with the Fed funds rate. The Magnificent 7 (Mag 7) Index is currently technical-positioned for an upside breakout toward new all-time highs.
Money Supply Cushion: Broad money supply (M2) growth at 5.4% YoY provides essential systemic liquidity to cushion financial markets against rate tightening.
Historical Analysis: Rate Hiking Cycles Since 1980
Historical data across 10 central bank rate-hiking cycles confirms that rate increases are rarely “one and done”.
Cycle / Fed Chair
First Hike
Last Hike
Duration (Mo)
# of Hikes
Start Rate
Peak Rate
S&P 500 Performance
Volcker I
02/15/1980
03/03/1980
0.6
2
14.00%
20.00%
-2.52%
Volcker II
08/07/1980
05/08/1981
9.0
9
9.50%
20.00%
+6.78%
Volcker III
05/02/1983
08/21/1984
15.7
4
8.50%
11.75%
+3.53%
Greenspan I
04/30/1987
02/24/1989
21.9
16
6.00%
9.75%
-0.43%
Greenspan II
02/04/1994
02/01/1995
11.9
7
3.00%
6.00%
+0.13%
Greenspan III
03/25/1997
03/25/1997
< 1.0
1
5.25%
5.50%
0.00%
Greenspan IV
06/30/1999
05/16/2000
10.5
6
4.75%
6.50%
+6.80%
Greenspan / Bernanke
06/30/2004
06/29/2006
23.9
17
1.00%
5.25%
+11.57%
Yellen / Powell I
12/16/2015
12/19/2018
36.1
9
0.25%
2.50%
+20.93%
Powell II
03/16/2022
07/26/2023
16.3
11
0.25%
5.50%
+4.79%
Warsh (Current)
09/16/2026
Ongoing
Ongoing
1
3.75%
4.00%
TBD
Historical Average
—
—
16.2
8.2
5.16%
9.00%
+5.16%
Historical Median
—
—
15.7
8.0
5.25%
6.25%
+4.16%
Energy Shocks & Financial Market Innovation
Crude Oil Drives Treasury Yields: Escalating attacks involving Iran and regional allies in the Persian Gulf and Red Sea pushed WTI crude oil past $100/bbl ($100.83). The 10-year Treasury yield is tightly coupled with oil prices ($R^2 = 0.9249$). Every $1/bbl increase in crude adds approximately 1.38 bps to the 10-year yield; $110 oil implies a 5.06% yield, while $115 oil implies a 5.13% yield.
Freight & Transportation Squeeze: Retail gasoline ($4.47/gal) and diesel ($6.45/gal) are elevating freight costs. J.B. Hunt (JBHT) issued a rare earnings warning citing high energy costs, signaling broader potential margin compression across transport logistics.
SEC Tokenization Sandbox: The SEC granted a 5-year Innovation Exemption for Tokenized Securities Venues (TSVs) to trade listed NMS stocks using permissioned onchain liquidity pools. While subject to volume caps, OFAC compliance, and issuer opt-outs, this supervised testbed underscores institutional movement toward blockchain market rails.
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.
Last week, stocks finished lower in a holiday-shortened week as higher oil prices, rising interest rates, and renewed inflation concerns pressured both equity and fixed income markets.
The S&P 500 Index fell 0.8%, while the Russell 2000 small-cap index declined 2.4%, reflecting the pressure of higher long-term interest rates.
West Texas Intermediate (WTI) crude oil settled near $100 a barrel as the war with Iran tightened global oil supply. Diesel prices hit a record $6.20. The 10-year Treasury yield closed near 5%, its highest level since October 2023. That move followed Friday’s Consumer Price Index (CPI) report, which came in slightly higher than expected, pushing the probability of a 25-basis-point rate hike at this Wednesday’s Federal Open Market Committee (FOMC) meeting to 88%.
Key Takeaway: We believe the markets will view a rate hike by the Federal Reserve (Fed) as a positive and give the Fed greater credibility in its commitment to fighting inflation. At the same time, Oracle Corporation’s (ORCL) earnings report showed that demand for artificial intelligence (AI) infrastructure remains very strong.
The S&P 500 has been oversold on a daily basis. This could be a sign that equities can rally on good news and would be counter to the historical decline that takes place in September (the 5-year average is a decline of 2.68%).
The FOMC announces its interest rate decision Wednesday afternoon. It will publish a Summary of Economic Projections (SEP), detailing members’ expectations for interest rates, inflation, and economic conditions, followed by a news conference by Fed Chair Kevin Warsh.
At last Friday’s close, the Fed funds futures market priced an 88% chance of a 25-basis-point hike, raising the target rate from 3.50%–3.75% to 3.75%–4.00%. If the FOMC holds rates steady, the market will be surprised and the move will likely be taken as a negative.
CPI Overview: Headline CPI rose 0.4% in August (3.4% YoY). Core CPI (excluding food and energy) rose 0.3% on the month, slightly above the 0.2% expected.
PPI & Labor: Producer prices came in hotter than expected due to rising energy costs. Meanwhile, private domestic purchases were solid, jobless claims remained near 60-year lows, unemployment held at 4.1%, and August payrolls surprised to the upside.
10-Year Treasury Yields Near 5% Doing the Fed’s Work
The 10-year Treasury yield reached 4.98% before finishing the week at 4.97%, while the 30-year yield touched its highest level since 2007 near 5.40%.
Higher long yields raise borrowing costs for mortgages and auto loans while elevating the discount rate applied to long-duration growth stocks. Existing home sales in August remained depressed below a 4-million annual rate. We expect the 5% yield level on the 10-year to hold, and yields could ease if the Fed delivers a rate hike that restores market confidence in inflation control.
Oil Above $100 Is an Inflation Problem
WTI crude settled at $100.05 after touching $104 Friday morning. Ongoing conflict with Iran continues to severely curtail global supply:
Houthi forces seized control at the Bab al-Mandeb Strait.
Saudi Arabia shut down its East-West pipeline following drone attacks, cutting the primary bypass around the Strait of Hormuz and reducing flow by an estimated 2 to 3 million barrels a day.
With oil breaking above resistance at $97, momentum could carry prices toward $110–$120. The Energy sector remains our top overweight sector and is the best-performing sector year-to-date, up nearly 45%.
AI Demand Remains Strong: The Constraint Is Memory and Money
Earnings from Oracle (cloud infrastructure revenue up 121%) and Dell confirm that the AI infrastructure buildout remains extremely powerful:
Dell: Booked $60.9 billion in AI server orders in a single quarter (up from $24 billion), ending with a $95 billion backlog.
Hyperscaler CapEx: Spending by Amazon, Alphabet, Microsoft, and Meta is expanding from the mid-$400 billions in 2025 to $700–$800+ billion in 2026.
Supply Bottleneck: High-bandwidth memory (HBM) chips from SK Hynix, Samsung, and Micron (MU) are sold out through 2026, with 2027 capacity already being pre-allocated. Because new semiconductor fabs won’t deliver major output until mid-2027 or later, physical memory supply—not customer demand—is the primary bottleneck capping server shipments.
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.
Federal Reserve Chair Kevin Warsh’s highly anticipated Jackson Hole speech struck a distinctly hawkish tone. Reiterating the Fed’s firm 2% inflation target, Warsh raised the probability of another interest rate hike before the year ends. His comments—paired with a sudden surge in oil prices triggered by renewed geopolitical tensions between the U.S. and Iran—ignited fresh volatility across fixed income markets.
However, Fed Governor Christopher Waller offered a softer, more dovish perspective shortly after, indicating support for holding rates steady. Waller’s comments helped calm bond markets, pulling yields back down as rate-hike expectations cooled. Despite all the noise and headline risk, equity markets have remained essentially flat since mid-August.
MARKET SUMMARY: While Fed speeches and oil price spikes triggered short-term volatility in bond yields, stock markets have shown remarkable resilience, trading largely sideways since mid-August.
Strong August Jobs Report Keeps Rate Hikes on the Table
The latest employment data delivered a massive surprise. Non-farm payrolls jumped by 162,000 in August—roughly three times higher than consensus expectations—while figures from prior months were revised upward. Although recent month-to-month employment data has been choppy (the 3-month moving average sits at roughly 71,000), the overall labor market remains structurally sound and near full employment.
Key highlights from the August jobs report include:
Unemployment Rate: Held steady at a low 4.1%.
Wage Growth: Remained moderate at 3.1% year-over-year, suggesting minimal wage-driven inflationary pressure.
Fed Implications: The strong headline job gain renewed upward pressure on interest rates and swung expectations back toward a potential rate hike.
Crude Oil Prices Surge: Energy Sector Outperforms
Energy markets have seen a sharp move. West Texas Intermediate (WTI) crude oil surged from its intraday low of $82.25 to a high of $93.14 per barrel. Key technical levels to watch:
Key Resistance at $97: As long as WTI stays below $97, oil is expected to stay within a defined trading range. A breakout above $97 could open the door to test recent highs near $110–$117.
Sector Impact: Higher oil prices raise broader inflationary concerns, putting upward pressure on bond yields. However, rising energy prices remain a powerful catalyst for S&P 500 Energy stocks—a sector where portfolio positioning remains overweight.
Treasury Yields & Bond Market Volatility
Despite non-stop debate over interest rate direction, the 10-year Treasury yield is essentially right back where it was in 2023. Long-term interest rates have traded within a consistent range for nearly three years, capped near 5.0% (a high reached in late October 2023).
From a technical standpoint, 10-year yields are forming a broad rectangular pattern. While an eventual breakout (higher or lower) will mark a major macro shift, a near-term breakout is unlikely.
Meanwhile, bond market volatility (as measured by the ICE BofA MOVE Index) spiked recently but appears set to retreat in the short term—a welcome relief for fixed-income portfolios. Key catalysts to watch this week include the upcoming Consumer Price Index (CPI) and Producer Price Index (PPI) reports, which will provide vital clues for the Fed’s upcoming policy meeting.
Corporate Earnings: High Margins, Higher Expectations
Strong corporate profit growth remains a primary cornerstone of the ongoing bull market, heavily fueled by rapid Artificial Intelligence (AI) adoption. For instance, Dell Technologies (DELL) recently reported Q2 earnings well above consensus estimates and raised its fiscal outlook, highlighting robust enterprise AI demand.
Expanding Profit Margins: Consensus 12-month forward operating margins for the S&P 500 have expanded from 18.8% at the beginning of the year to 21.2%, with broad participation across most sectors.
Broad Earnings Breadth: 82.2% of S&P 500 companies posted year-over-year profit growth in Q2 (up from 80.6% in Q1). While extreme breadth can sometimes precede market pauses, analysts expect earnings growth to peak several quarters out.
Upward Earnings Revisions: Yardeni Research’s Net Earnings Revisions Index (NERI) reached +8.3% in August—a 57-month high marking 13 consecutive positive months. All 11 S&P sectors posted positive revisions, offering strong fundamental support for equities.
Could September’s “Pain Trade” Actually Be a Rally?
Historically, September has a reputation for being the toughest month for stocks, averaging a 2.7% decline over the past five years. However, entering September with deeply oversold technical readings across the S&P 500, Nasdaq 100, and Semiconductor ETF (SMH) creates prime conditions for a tactical rally.
TACTICAL OUTLOOK: If the consensus among investors is positioned for a September pullback, the true “pain trade” might actually be stock prices pushing higher into early autumn. Our year-end target for the S&P 500 remains 8,225 (a ~6% upside from current levels).
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.
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.
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.
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.
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.
Markets Navigate Oil Spike and Tech Earnings Pressure
Both the equity and fixed income markets were volatile last week due to higher oil prices and concerns over the ongoing large capex spending by some of the mega technology companies.
Oil prices surged last week as the U.S. continued its strikes on Iran — heightening supply fears again — while Iran-backed Houthi rebels claimed attacks on two Saudi oil tankers in the Red Sea. WTI crude oil prices surpassed resistance in the $80–$85 per barrel range, climbing as high as $93. However, with the prospect of negotiations, oil prices have collapsed and are trading in the low 80s.
Earnings also contributed to volatility within the equity market as both Tesla (TSLA) and Alphabet (GOOGL) announced continued heavy spending on capex, which is weighing on quarterly free cash flow. Investors now head into a heavy slate of earnings and central bank decisions with risk levels elevated and volatility likely to remain high as rotation continues across the equity market.
2-Year Treasury Yield Rises To Test Resistance
With higher oil prices raising concerns over inflation, the market has pushed interest rates higher. The 2-Year Treasury yield has retraced roughly 50% of its previous decline and is now testing resistance at 4.3%. If that level holds, the yield could retreat toward 4.0%. A decisive break above 4.3% would open the door to a move toward 4.8%–5.0%. Such a move would likely rattle the equity markets and extend the current correction.
10-Year Treasury Yield Also Testing Key Resistance
The 10-Year Treasury yield is testing key resistance near 4.8%–5.0%. We believe that if the strikes on Iran subside and oil prices decline, this test should prove successful. However, if the attacks continue and oil prices push higher, the risk is that yields could move higher.
S&P 500 Approaching Oversold: Needs To Rally
The S&P 500 is approaching oversold levels, but it needs to respond to prevent another down leg. Without a positive response, the Bears are likely to remain in control.
Nasdaq 100 With A Bearish Top
The Nasdaq 100 appears to have formed a top with risk of a deeper correction. The Semiconductors have the same pattern. We did highlight in our Mid-Year Outlook that the Bucking Bull would return. Without a rally soon, the risk is the correction in Technology will continue because the Nasdaq 100 is heavily weighted in Tech.
Tech Earnings Spotlight AI Capex Spending and Cash-Flow Concerns
Tesla (TSLA) and Alphabet (GOOGL) both reported second-quarter results that triggered sharp share-price declines despite underlying positive data. Tesla posted strong revenue growth, but adjusted earnings came in below consensus as profit margins declined, and the company generated negative free cash flow. Alphabet delivered solid revenue growth, beat earnings forecasts, led by strong results in Google Cloud, but raised its 2026 capital-expenditure forecast above expectations and also reported negative free cash flow for the first time.
Market reaction showed investors are increasingly focused on the scale of spending and concerned about free cash flow. The continued high capex spending shows the deep competition among the big Tech companies. They are operating in an environment where the winner takes all, and all are trying to be number one.
Competition Heats Up
Competition is heating up. Moonshot AI, a Chinese AI company, recently introduced its Kimi K3 large language model, which has drawn substantial attention as a potential challenger to U.S. frontier AI models such as Anthropic’s Claude. Reports indicate Kimi used high-end Nvidia chips — despite export restrictions — and relied on distillation (a machine learning technique where a large, complex teacher model trains a smaller, efficient student model to mimic its behavior) of existing U.S. models, following a path similar to DeepSeek 18 months ago. It is also expected that the Kimi K3 model learned and trained using the Claude LLM model without permission.
On a positive note, Intel (INTC) provided optimism last Thursday when it reported earnings that beat estimates on major fundamental metrics. Overall, the week reinforced that volatility remains within the major Technology companies, especially in semiconductors and technology hardware.
Rails Catch Ride On Consolidation Progress
Union Pacific (UNP), Norfolk Southern (NSC) and CSX (CSX) all advanced sharply last week. The catalyst was an agreement in which Canadian National Railway (CNI) said it would not oppose Union Pacific’s proposed acquisition of Norfolk Southern. Norfolk Southern also beat second-quarter profit estimates, while CSX raised its margin outlook and reported strong volumes.
These Rail stocks rose on the news, standing out against a weaker broader market. Their move signals that investors see tangible progress on consolidation and solid underlying demand in the rail sector. Railroads are a cyclical industry, and their strength suggests cyclical sectors remain well supported. It is also a sign that the economy is growing.
We remain positive on the Industrials sector where the Rails are positioned. This offers a reminder that selective industrial strength can appear even when headline indexes are under pressure. Sector rotation is keeping the equity market in a bullish pattern — at least for now.
Key Macro & Market Trends & The Great Wealth Transfer: How Big Is It Really?
Estimates of the coming intergenerational wealth transfer vary widely. Cerulli Associates projects that older generations will pass more than $100 trillion to heirs in the decades ahead. A more recent study from Visa puts the figure for Baby Boomer wealth transferred to Gen X and Millennials over the next 20 years at roughly $36 trillion.
The difference is large, yet both numbers point to a substantial shift of assets. For investors, this matters because the recipients are likely to reallocate portfolios, increase demand for advice, and influence long-term flows into equities and other risk assets. While the exact size remains debated, the direction of the transfer is clear and will unfold over many years.
Presidential Cycle Average Returns
Average equity returns across the four-year presidential cycle since 1952 show that performance so far in the current presidential term through the end of June 2026 is well above average performance for the mid-term year.
Japan Trade Data Shows Resilient Demand
Japan reported that both exports and imports grew in June at the fastest pace since November 2022, beating estimates. Exports rose sharply, helped by semiconductor shipments tied to artificial intelligence and data center demand. Imports also increased, driven in part by higher energy costs.
The figures point to continued underlying demand for Japanese goods and recovery in its economy. We believe these trends offer a constructive signal for trade and technology-related supply chains, supporting the broader global growth narrative.
Defense Stocks Remain Attractive
European defense stocks continued to draw investor interest last week on the back of ongoing rearmament efforts. Rheinmetall (RHM, Frankfurter Wertpapierbörse) is expanding gunpowder and ammunition capacity as Europe races to replenish stockpiles. The broader sector, including names such as Dassault Systèmes (DSY, Euronext Paris), Thales (HO, Euronext Paris), and Indra Sistemas (IDR, Bolsa de Madrid), has also benefited from the same multi-year spending push.
At the same time, U.S. defense manufacturers have been directed by the Trump Administration to increase production and replenish stockpiles of munitions expended in Ukraine and Iran. The dual pressure of European rearmament and U.S. replenishment creates a supportive backdrop for the sector on both sides of the Atlantic.
For investors, this remains a structural theme rather than a short-term trade. Spending commitments are multi-year, order backlogs are strong, and selective opportunities continue to exist even after the strong gains of recent years.
Sector Readings & Rankings
Energy was strongest last week, followed by Information Technology, then Industrials; this is the same order as the prior week. Technology is weakening, signaling a correction is in place. Consumer Discretionary was in last place, followed by Communication Services, then Consumer Staples.
Our sector model analyzes S&P 500 GICS sector classifications, using a weighted measure of price momentum across three time periods. We rank each sector from best to worst based upon the average of its 40-, 26-, and 13-week relative price performances. We rank each sector from 1 to 11, with 1 being the strongest and 11 the weakest.
Sector
Jul 24
Jul 17
Jul 10
Jul 3
Jun 26
Jun 19
Jun 12
Jun 5
Energy
1
1
2
5
3
5
2
2
Information Technology
2
2
1
1
1
1
1
1
Industrials
3
3
3
2
2
2
3
3
Healthcare
4
4
4
3
5
10
8
7
Real Estate
5
5
5
6
7
6
9
5
Financials
6
6
9
8
9
9
11
11
Materials
7
7
7
4
6
4
4
4
Utilities
8
10
10
10
4
11
5
10
Consumer Staples
9
8
8
7
8
7
7
8
Communication Services
10
9
6
9
10
3
6
6
Consumer Discretionary
11
11
11
11
11
8
10
9
Overbought / Oversold (OBOS) Sector Analysis
Healthcare was overbought last week, followed by Financials and Industrials as near overbought. Technology is correcting. Consumer Discretionary and Communication Services were oversold, while Materials and Consumer Staples were near oversold. We note that Consumer Discretionary was unusually oversold.
Our tactical sector rotation model uses the S&P 500 GICS sector classifications. We apply a 13-week rate of change methodology that normalizes the rankings from overbought (OB) to oversold (OS).
Rank
S&P Sector
Normalized Oscillator
Status
1
Healthcare
1.4363
Overbought
2
Financials
0.9724
Near Overbought
3
Industrials
0.6014
Near Overbought
4
Information Technology
0.3430
Neutral
5
Real Estate
0.3115
Neutral
6
Energy
0.1813
Neutral
7
Utilities
-0.3420
Neutral
8
Consumer Staples
-0.7405
Near Oversold
9
Materials
-0.8667
Near Oversold
10
Communication Services
-1.6772
Oversold
11
Consumer Discretionary
-2.5622
Oversold
Earnings, Data, And Rates, Oh My!
This week draws major earnings, key inflation data, and rate decisions from 3 global central banks. Buckle up!
This is the biggest week for second-quarter earnings with a third of the S&P 500 companies reporting. This also brings a dense cluster of policy decisions and data. The Federal Open Market Committee (FOMC) announces its rate decision on Wednesday, followed by the Bank of England on Thursday and the Bank of Japan on Thursday night into Friday. On Thursday, the June Personal Consumption Expenditures (PCE) price index will be released.
Earnings season continues with reports from major companies including Microsoft (MSFT), Meta Platforms (META), Amazon (AMZN), Apple (AAPL), ExxonMobil (XOM), and Chevron (CVX).
Expect increased levels of volatility this week as the Bull is expected to Buck. Remain Fearless.
Weekly Calendar (July 27–31, 2026)
Day
Economic Data / Events
Earnings Highlights
Mon (Jul 27)
8:30 AM Durable Goods
Universal Health
Tue (Jul 28)
8:30 AM Advance Economic Indicators Report, Wholesale Inventories, Retail Inventories
9:00 AM S&P Case-Shiller Home Price Index
10:00 AM Conference Board Consumer Confidence
Invesco
Wed (Jul 29)
2:00 PM U.S. Interest Rate Decision (FOMC)
Ares Capital, UBS, Microsoft, Meta Platforms
Thu (Jul 30)
8:30 AM Advance Estimate GDP, Weekly Jobless Claims, Personal Income, Consumer Spending, PCE Price Index
Apple, Amazon
Fri (Jul 31)
8:30 AM Employment Cost Index
9:45 AM Chicago Business Barometer (PMI)
10:00 AM U.S. Michigan Final Consumer Survey
Chevron
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