August 10, 2026

 “Everyone has the brain power to make money in stocks. Not everyone has the stomach.”

Peter Lynch

Boom! What a week! Here are the numbers. The S&P 500 hit new highs up 3.6%, the Dow Jones Industrial Average followed up 2.42%, and the Nasdaq soared up 4.86%. Internationally, the FTSE 100 managed a small gain up .30% and the MSCI-EAFE rose 2.20%. The 2-Year treasury paid 4.199% and the 10-Year yield was 4.649%.

Why all the good news? As Barron’s Alex Rule reports “The previous week, stocks got a big boost from earnings. Last week, it was all about the economy. And while the news isn’t all good, it made the market happy. Stocks rose and bond yields fell last Friday in the wake of a payrolls report that showed the economy shed 23,000 jobs in July. It’s the kind of miss that moves markets. Economists had forecast a job gain of 95,000. The job gains for May and June were also revised lower. All this means it’s less likely the Federal Reserve will be pushed to raise interest rates at an upcoming meeting. Thus, the bad news was seen positively by stocks. The Nasdaq Composite, which is full of rate-sensitive growth stocks, finished the Friday up 1.3% and wrapped its best week since April. The tech-heavy index, which fell for much of June and July, is now back to just 1.3% from its record high. The S&P 500, meanwhile, closed the day at a record, up 0.6% for the session, and 3.6% for the week.” Small Caps also joined the party, with the Russell 2000 up 3.5%.

Speaking of the Federal Reserve, last Thursday, Fed Chairman Kevin Warsh was, as they say, on the horns of a dilemma. Should he continue to talk tough on inflation at the Jackson Hole conflab on August 27th, possibly signaling a rate hike in September, or talk about AI and productivity fairies leading to a much more dovish outcome? Maybe both? Or, as seems to be his inclination, say nothing meaningful at all?   Well, by last Friday morning his job got a whole lot easier. Hiring rolled over in July, and prior months were marked down rather significantly. This isn’t an ‘end of the world’ recessionary report by any stretch, but a contraction is a contraction, and it gives Warsh an out when talking about policy for at least a couple months. The modest contraction in hiring combined with slower payroll growth means the Fed can take a wait-and-see approach. But underneath the surface it’s pretty clear the wheels aren’t coming off the economy.

As we drill down on key economic numbers, the standout release was the July Employment Situation report (August 7). Non-farm payrolls fell by 23,000 (vs. expectations of roughly +80,000). May and June figures were revised down by a combined 103,000, pulling the three-month average to about 20,000. The unemployment rate edged down to 4.1% from 4.2%, driven mainly by a drop in labor-force participation to 61.4% (near multi-year lows). Average hourly earnings rose just 0.1% month-over-month, slowing annual wage growth to 3.2%.

Some other notable data was ISM Manufacturing PMI (July): Rose to 55.6 (highest since May 2022) from 53.3, with production jumping to 58.5 and employment returning to expansion at 52.8. Prices paid eased slightly to 71.1 but remained elevated. ISM Services PMI (July): Held steady near 54.1, indicating continued expansion (25th straight month). Productivity and costs data for Q2 were also released mid-week. Overall, business activity looks resilient even as the labor market cools modestly (“slow hire, slow fire”).

How about inflation? June CPI (released in mid-July, still the latest full report) showed meaningful cooling: headline CPI fell 0.4% month-over-month and rose 3.5% year-over-year (down from 4.2%). Core CPI was flat month-over-month and up 2.6% year-over-year. Energy prices drove much of the decline. PPI for final demand fell 0.3% in June (YoY +5.5%). July CPI is due this Wednesday (August 12) and PPI on Thursday. Consensus leans toward modest monthly increases (around +0.1% headline CPI, +0.2% core), with annual core inflation potentially dipping further. Energy volatility linked to earlier Middle East tensions remains a watch point.

Foreign markets?  According to Reuters, “Foreign markets generally rose in sympathy. Europe’s STOXX 600 gained around 1.7–2%, with solid showings in Germany (DAX) and elsewhere. Japan’s Nikkei was mixed to higher earlier in the week. Emerging markets were mixed (China mainland indices stronger, some Asian markets softer). The U.S. dollar softened modestly. Global equity funds continued to see inflows.”

How about housing and mortgage rates any good news yet? It seems more of the same. Freddie Mac’s Primary Mortgage Market Survey (as of August 6) showed the 30-year fixed rate averaging 6.69% (up slightly from 6.66% the prior week) and the 15-year at 6.01%. Housing activity has been resilient but constrained by rates and affordability. Inventory has improved modestly in some reports, while pending sales and applications have been mixed/sideways. Existing home sales data for July is due this week.

Finally, the broader outlook is that the economy shows a split personality with solid manufacturing/services expansion and corporate earnings vs. a cooling labor market and still-elevated (though moderating) inflation pressures from energy, tariffs, and services. Markets are pricing a “patient Fed” near-term, which has been equity friendly. (no kidding!) Geopolitics (Middle East energy flows) and AI-driven productivity remain key swing factors. Risks include sticky inflation forcing later hikes or a sharper labor slowdown. Overall, the soft-landing narrative retains support if July inflation cooperates. In a word we are still moving forward on a good, possibly great 2026.

Mike