US equities delivered modest gains in August, with the S&P 500 and the Dow climbing 2.7% and 1.5%, respectively, while the Nasdaq Composite outperformed by advancing 4.0%. Strong corporate earnings and continued AI-related investment supported sentiment, with NVIDIA’s exceptionally strong earnings report boosting the tech sector. At the same time, investors remained concerned about higher yields driven by elevated inflation, a large fiscal deficit, uncertain fiscal policy, and heavy private investment. The US 30-year yields have hit a 19-year high of 5.3%.  All eyes were on the Jackson Hole Symposium at the end of the month, and Chair Warsh delivered a speech with a more hawkish tone than expected by reaffirming the Fed’s 2% PCE inflation target and indicating possible tightening if inflation does not move toward the target. We remain moderately constructive on US equity, driven by resilient growth, healthy corporate earnings, and strong AI-related investments. However, downside risks remain amid stretched valuations, inflationary pressures, and interest-rate and Fed policy uncertainties. With this backdrop, we maintained our equity exposure at 84% in our defensive, tailored approach.

What's Driving the Markets?

Treasury Buyback: On August 19, 2026, Treasury announced that it would double the maximum size of its long-end buyback operations from $2 billion to $4 billion per operation for its longer-dated securities, beginning September 9. The current buyback program is primarily designed as a liquidity-management tool, rather than conventional QE. Treasury is buying older, less-liquid "off-the-run" securities, particularly in the 10–20-year and 20–30-year sectors, and it does not permanently remove debt. The immediate market reaction was positive: the 30-year yield declined about 9 bps to 5.19%, while the 10-year yield dropped about 6 bps to 4.65%. It also had a moderate yield-curve flattening effect, as the long-term yield dropped more than the front end of the curve. Overall, we would view the buyback as short-term liquidity support, rather than a fundamental solution to the fiscal problem. This is consistent with the subsequent market reaction: the 30-year yield moved higher after the initial decrease as investors questioned whether the buyback program was big enough to address the underlying problem.

Inflation and Employment: Payroll data indicated the labor market was softening in July, with employment falling by 23,000, well below consensus. The government and leisure industries saw significant job losses, overshadowing the mild gain in healthcare. Previous months’ data were also revised downward, leading to the three-month average declining from 111,000 in June to 20,000 in July. Although the unemployment rate ticked down to 4.1%, it was primarily driven by a decrease in the labor force. The July employment report has significant implications for the Fed’s rate policy. While growing inflation pressure has increased the expectations that the Fed could raise rates this year, a significantly weakening labor market would reduce the probability of rate hikes. At the same time, recent inflation data was tame, with a 0.1% monthly increase in headline CPI and a 0.22% increase in core CPI, bringing year-over-year growth in headline and core CPI to 3.4% and 2.5%, respectively.

Jackson Hole Symposium: Chair Warsh delivered a speech that was notably more hawkish than market expectations at the Jackson Hole Symposium. In the speech, Chairman Warsh indicated a willingness to tighten policy if inflation does not move toward the 2% target. In particular, he emphasized that, "The Fed's price-stability objective of 2%, as measured by the personal consumption expenditures (PCE) price index, is a firm, fixed target." He also clarified the July hold by saying, "And we expressed our joint readiness to act as circumstances might require." Warsh noted that growth appears to have strengthened, but the recent improvement in inflation data "does not tell me that underlying trends have meaningfully improved." After the speech was released, the two-year Treasury yield, which is more sensitive to expectations for what the Fed will do with the fed funds rate, was up 7 bps. Also, market expectations for the probability of a September hike moved from 35% to nearly 60%.
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By the Numbers

As of 8/31/26. Data provided by Bloomberg, NorthCoast Asset Management, Federal Reserve History.

The NorthCoast Navigator is a market barometer displaying NorthCoast's current U.S. and international equity exposure and outlook. This aggregate metric is determined by multiple data points across four broad market-moving dimensions: Technical, Sentiment, Macroeconomic, and Valuation. The daily result determines equity exposure in our tactical strategies. 

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