Thomas White
Co-HostSummer Swoon Hits Stocks as Higher Oil Prices and Yield Volatility Crank the Heat on Markets
Thomas White
Co-HostMarkets had a downbeat mid-August week as renewed U.S.-Iran geopolitical tensions pushed crude oil above $87 a barrel.
Treasury yields are also rising with the 30-Year bond hitting a 19-year high this week and the 10-Year at its highest level since January of 2025. This has led to losses for the major indices this week. As of Thursday’s close, the S&P 500 (SPX) is down 1.9% this week while the tech-heavy Nasdaq-100 (NDX) is off 2.8%. The Dow Industrial Index ($DJI) has fallen 1.8% so far this week, and the small-cap Russell 2000 (RUT) is down 2.5%.
The macro narrative may remain the key driver of market direction in the weeks ahead.
The week's biggest story was the volatility in the bond market. Treasury yields climbed to multi-year highs as investors reassessed inflation risks amid higher energy prices and the possibility that the Federal Reserve may need to maintain a restrictive policy stance longer than previously expected. The U.S. Department of the Treasury announcement to double its long-end bond buybacks, which provided a brief, one-day relief rally for stocks on Wednesday. However, the positive momentum vanished by Thursday as yields rebounded, dragging major indexes down on fiscal, inflation, and debt concerns.
Energy markets were also creating headwinds for stocks this week. Crude oil prices surged to four-week highs as concerns intensified over the security of shipping routes through the Strait of Hormuz, one of the world's most important oil transit corridors. WTI crude is up nearly 6% this week and traded above $87 per barrel. On Thursday, Treasury Secretary Scott Bessent said the U.S. will use sanctions and its naval blockade to “collapse” the Iranian regime, which sent crude up over 2.5% on the day.
On the earnings front this week, we saw some bifurcated results from the major retailers. Walmart (WMT) reported on Thursday morning and fell over 9% on the day, to nine-month lows, after disappointing results. Walmart missed comparable sales expectations, reporting its first same-store sales decline since 2020. Target (TGT), on the other hand, had a beat on the top and bottom lines. This included 5.6% comparable sales growth, raising expectations that its recovery efforts were gaining traction. Home Depot (HD) kicked off the week with stronger-than-expected results, demonstrating resilience in the home improvement market despite elevated mortgage rates and a sluggish housing environment. Lowe's (LOW) earnings highlighted many of the same trends, but its outlook was weak as the company continues to face challenges from a softer housing market and reduced DIY activity.
As the week comes to a close, investors are facing a market caught between two realities. On the one side are solid corporate earnings and a still-resilient economy. On the other side, rising yields, higher oil prices, and geopolitical uncertainty have created headwinds for stocks. The recent pullback has largely been driven by these risks rather than a dramatic deterioration in corporate fundamentals.
As attention turns toward a final round of earnings, including Nvidia (NVDA) next Wednesday, will the focus begin to shift back to corporate results? Or will investors continue to focus on Federal Reserve policy expectations, bond yields and oil prices?
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