Strong Profits, Shaky Yields: This Week in Markets

Markets found themselves pulled in two directions last week, as strong earnings ran up against shaky Treasury yields. A steady stream of earnings reports from major retailers set an encouraging tone on the U.S. consumer, but investor attention was increasingly drawn toward the bond market amid Treasury yields pushing higher. Adding to the uncertainty was the unresolved conflict in the Middle East, where markets and policymakers alike are now grappling with what the White House has termed a new phase of “economic warfare.” On the week, the S&P 500 fell 1.4%, snapping a three-week winning streak, while the Nasdaq lost 2.1% and the Dow was on track for a decline of 0.9%.

Eight of the 11 S&P 500 sectors ended the week in negative territory, with information technology, utilities and industrials all slipping by more than 3.0%. The three sectors to buck the downtrend were materials, energy and health care. Health care stocks also got a boost this week after Merck and Moderna announced their personalized mRNA cancer vaccine, paired with Keytruda, showed positive signs of successfully slowing melanoma recurrence and spread in a late-stage trial. The breakthrough milestone sent shares of both companies higher and lifted the pharma and biotech space throughout the week.

This week, a slew of consumer-focused companies issued profit results, giving good insight into how the consumer is faring in 2026. The first of many positive signals was strong profit growth numbers across discount and big-box retailers. This was the result of two things. The first was a strong consumer in the first half of 2026 driven by larger tax refunds. Although this has been a nice tailwind in the first half of the year, real consumer spending trended down in July as these impacts have rolled off. The second impact was a one-time International Emergency Economic Powers Act tariff refund to corporations. The refunds shed light on just how large the costs had become, with the U.S. government issuing more than $100 billion in tariff refunds over the last three months. Messaging so far indicates companies are strategically using refunds to increase marketing budgets, offset ongoing cost headwinds and/or lowering consumer prices. Despite this one-time windfall to corporations, the effective tariff rate is mostly unchanged from the start of the year, with new tariffs replacing the old tariffs that were originally struck down by the courts.

As for the overall health of the consumer, a few positive takeaways are worth noting. Back-to-school and back-to-college season, an important early tell for consumer confidence heading into the holidays, came in strong across the board. Home improvement stores described middle-income homeowners as having strong personal balance sheets, real disposable income growth and rising home equity. This is despite a frozen housing market that has been stuck near historic lows for four straight years, leading to lower demand for big-ticket items. Elsewhere, lower-income shoppers remain under pressure, particularly as fuel prices spiked above $4 during the quarter and retailers called June “more obvious” in terms of customers making visible trade-offs in their baskets.

Beyond the consumer, this earnings season delivered a strong scorecard, with the vast majority of the S&P 500 now having issued results. Profit growth is tracking to roughly 50% year over year, though a chunk of that reflects large tech names marking their private stakes to market. Strip that out, and the picture is still impressive, with earnings up around 31%, and healthy growth across the board. The growth was not just isolated to a few mega-cap tech companies, with the median S&P 500 company growing by 14%. Underneath the profit numbers, the revenue trend is arguably the more telling signal for the broader economy. Real revenues outside the energy sector grew at their fastest clip since 2021, a sign that demand is driving growth rather than cost-cutting and margin expansion.

This week’s other major storyline was the continued climb in long-term Treasury yields, which has put the Trump administration in an increasingly uncomfortable spot. Treasury Secretary Scott Bessent took to the airwaves for two days last week trying to talk the long end lower, and while yields dipped briefly, they reversed and closed higher in both sessions. This comes after Wednesday, when the Treasury doubled the size of its buyback operation for 10-year and 30-year debt from a $2 billion cap to at least $4 billion.

Additionally, rumors are swirling that this could just be the beginning of support for the long end of the curve. According to senior Treasury officials, the Treasury could use its nearly $1 trillion General Account to help fund its recently announced plans to increase purchases of government bonds. Bessent has floated a few explanations for the backup in yields, pointing to a “temporary” deficit blowout from tariff refunds and competition for capital with surging corporate bond issuance. In our view, Treasury yields will likely continue to face pressure amid an unfavorable macroeconomic backdrop of stubbornly high inflation, surging oil prices and a widening fiscal deficit.

Looking ahead to this week, investors will have a jam-packed week of economic data, central bank speak and a busy week of earnings reports. Headlining the earnings calendar will be Nvidia, which reports after the bell on Wednesday. Additionally, we will get an update on software names that have been heavily debated by investors amid artificial intelligence disruption risk. Companies reporting in that industry include Salesforce, CrowdStrike, Autodesk, Okta and Workday. Lastly, big-box retailers will continue to give earnings updates, with Kohl’s, Dick’s Sporting Goods, Best Buy and Dollar General reporting. In economic data, an update on the Federal Reserve’s preferred gauge of inflation, the Personal Consumption Expenditures Price Index, will be closely watched before the bell on Wednesday. Other notable releases this week include July personal income and consumer spending, along with a reading on consumer confidence.

Economic Calendar: August 24 to August 28

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5866303 – Exp. 07/31/2029