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Market News
Market analysis
August 17, 2026
Easing inflation and strong earnings support markets, while Middle East tensions, elevated oil prices and shifting interest rate expectations warrant a balanced investment approach.
Number of the week:
3.4%
The increase in the Consumer Price Index in July compared to a year earlier.
Term of the week:
Real estate investment trust (REIT)
A company that owns, operates or finances income-generating real estate. Like mutual funds, REITs pool the capital of numerous investors, allowing individual investors to earn dividends from real estate investments without having to buy, manage or finance any properties themselves.
Quote of the week:
Broader participation strengthens the foundation for the stock market advance. Technology and artificial intelligence-related companies remain important sources of growth, but last week’s gains reached smaller U.S. companies and foreign markets. This expansion reduces the market’s dependence on a limited group of large technology companies. Record highs do not eliminate the possibility of setbacks, but participation across more market segments indicates that investors see opportunities beyond the largest U.S. stocks.
― Terry Sandven, Portfolio Manager, Chief Equity Strategist, U.S. Bank
U.S. Bank Asset Management Group
Daniel Farley, CFA
Chief Investment Officer
Kaush Amin, CFA
Head of Private Market Investing
Chad Burlingame, CFA, CAIA
Head of Impact Investments
Thomas Hainlin, CFA
National Investment Strategist
Robert Haworth, CFA
Senior Investment Strategy Director
William Merz, CFA
Head of Capital Markets Research
William Northey, CFA
Senior Investment Director
Terry Sandven
Chief Equity Strategist
Global economy
Quick take: Inflation slowed in July, but elevated oil prices continue to complicate the inflation and economic growth outlook. Consumer spending moderated while low jobless claims supported household finances, and major economies continue to expand despite energy disruptions.
- The Strait of Hormuz dispute continues to disrupt global energy supplies. The United States and Iran hardened their positions last week, and U.S. officials signaled additional economic measures against Iran. Shipping through the strait, which normally carries about 20% of global oil, remained nearly stalled. Gulf producers continued building routes that bypass the waterway, while changes in supply and demand helped limit the broader economic impact of higher oil prices.
- Consumer and producer inflation slowed in July. Overall consumer prices rose 3.4% from a year earlier while prices excluding food and energy increased 2.5%. Both readings matched economists’ forecasts. Housing cost growth, which represents about 35% of the index, eased to 3.2%. Producer prices were unchanged in July and rose 4.7% from a year earlier. Inflation continues to exceed the Federal Reserve’s 2% goal, but July’s reports showed less pressure across several categories.
- A steady job market continues to support consumers. Small business optimism improved in August, and hiring plans reached their strongest level since 2022. New unemployment claims also remained low. Retail sales slowed in July after discounts may have encouraged some consumers to make purchases in June, yet spending still rose 5.0% from a year earlier. Other frequent spending measures remained positive, though consumer surveys stayed near historically weak levels.
- Economic activity outside the U.S. is mixed but stable. Eurozone industrial production rose 0.1% from a year earlier in June. The United Kingdom reported 1.2% second quarter economic growth, supported by stronger business investment, even as industrial output declined. Japanese machine tool orders climbed 50.4% from a year earlier. Together, these reports point to global growth despite higher energy costs and uneven manufacturing trends.
Equity markets
Quick take: Stock markets advanced broadly last week, with U.S. mid-cap and small-company stocks and foreign developed equities reaching record highs. Strong corporate profits continue to support gains as investors look ahead to major retailer results.
- Market gains extended across company sizes and regions. The S&P 500 rose 0.4% for a third consecutive weekly gain, but U.S. large-company stocks did not lead the advance. U.S. mid-cap stocks gained 1.5% while small-cap stocks rose 1.2%, and both closed Friday at record highs. Foreign developed equities added 0.6% and also reached a record while emerging market equities led major stock categories with a 2.7% gain.
- Broader participation strengthens the foundation for the stock market advance. Technology and artificial intelligence-related companies remain important sources of growth, but last week’s gains reached smaller U.S. companies and foreign markets. This expansion reduces the market’s dependence on a limited group of large technology companies. Record highs do not eliminate the possibility of setbacks, but participation across more market segments indicates that investors see opportunities beyond the largest U.S. stocks.
- Strong second quarter corporate results continue to support stock prices. With 91% of S&P 500 companies reporting through Friday, revenue grew 14.7%, compared with the 11.9% expected before the reporting season. Earnings increased 50.5%, more than twice the initial 23.1% estimate. Analysts project earnings growth of approximately 31% in 2026 and 13% in 2027. These forecasts suggest that continued business growth, rather than rising investor optimism alone, can support additional market gains.
- Retailer results will provide the next test of consumer demand. Home Depot, Lowe’s, Target, TJX, Walmart and Ross Stores report second quarter results this week, giving investors a closer look at household spending across income levels and product categories. Investors will focus particularly on larger optional purchases after July retail sales slowed. NVIDIA reports on August 26, offering another opportunity to assess whether growing artificial intelligence investment is translating into sustained demand and profits.
Bond markets
Quick take: Short-term Treasury bonds gained last week as slower inflation and softer retail sales reduced expectations for a near-term Federal Reserve rate increase. Lower-quality bonds also advanced, with investors continuing to seek income.
- Short-term Treasury bonds outperformed longer-term bonds. Bond prices rise when interest rates fall, so short-term Treasuries returned 0.1% last week as their rates declined. Longer-term Treasuries lost about 0.9% as their rates increased. Treasury sales of three-, 10- and 30-year bonds attracted reasonable demand, although buyers showed a modest preference for shorter maturities. That preference reflects uncertainty around inflation, Federal Reserve policy and the longer-term fiscal outlook.
- Slower inflation reduced expectations for a September rate increase. Federal Reserve officials continued to debate how long to hold policy steady. Some emphasized the risk that inflation could remain above the central bank’s goal, while others favored patience as price pressures eased. After the July inflation reports, financial markets placed a 30% probability on a 0.25% increase in September, down from about 50% at the start of the week. Markets still anticipate another increase by early 2027.
- Bonds with greater credit risk produced modest gains last week. Longer-term Treasuries and high-quality corporate bonds declined slightly as interest rates rose. Lower-rated corporate bonds, municipal bonds and bank loans advanced, with bank loans returning 0.3%. Bank loans generally respond less to changes in Treasury rates because their interest payments adjust over time. Carefully sized exposure to lower-quality bonds can increase portfolio income, although investors accept a greater risk of loss.
- Heavy corporate bond sales met solid investor demand. Companies issued $136 billion of high-quality bonds during the past two weeks, approaching a record for a typically quiet August. Buyers absorbed most of the supply, although some companies offered more income to attract demand. The additional compensation available on corporate bonds remains below its long-term average, suggesting that investors remain confident in companies’ ability to make interest and principal payments.
Real assets
Quick take: Publicly traded real estate and global infrastructure were little changed last week. Commodities rose as energy supply disruptions lifted oil and natural gas prices and gold extended its recent recovery.
- Publicly traded real estate held steady after a solid earnings season. Nearly all real estate investment trusts (REITs) have reported second quarter results, and close to 70% exceeded expectations. Data center REITs gained nearly 3.0% last week and more than 39.0% this year as artificial intelligence increased demand for computing facilities. Healthcare REITs declined about 2.0% for the week but are up roughly 35.0% over the past year, supported by demand from an aging population.
- Global infrastructure was flat despite gains in energy transportation. Utilities represent roughly half of broad global infrastructure investments and returned 0.2% last week. Higher bond rates can make utility income less appealing by improving the income available elsewhere, although rising electricity demand provides long-term support. North American pipelines and processing facilities gained about 4.3% as energy prices rose and policymakers emphasized domestic energy security.
- Broad commodity investments gained 3.4% last week. Energy led the increase, with shipping through the Strait of Hormuz restricted. Brent crude oil rose 6.0% and natural gas advanced 2.7%. Gold increased more than 0.9% and gained about 8.1% over the past month, recovering part of its nearly 27.0% decline earlier this year. Agricultural commodity prices also moved higher.
- Real assets continue to offer distinct sources of return. Property types respond to changes in rents, occupancy and financing costs. Infrastructure investments can benefit from long-lived demand for electricity, transportation and energy networks, while commodities often react more directly to supply disruptions and inflation. Their different return patterns can help diversify a portfolio, but sharp moves in energy and precious metals also reinforce the value of maintaining balanced exposure.
This information represents the opinion of U.S. Bank. The views are subject to change at any time based on market or other conditions and are current as of the date indicated on the materials. This is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific advice or to be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation. The factual information provided has been obtained from sources believed to be reliable but is not guaranteed as to accuracy or completeness. U.S. Bank is not affiliated or associated with any organizations mentioned.
Based on our strategic approach to creating diversified portfolios, guidelines are in place concerning the construction of portfolios and how investments should be allocated to specific asset classes based on client goals, objectives and tolerance for risk. Not all recommended asset classes will be suitable for every portfolio. Diversification and asset allocation do not guarantee returns or protect against losses.
Past performance is no guarantee of future results. All performance data, while obtained from sources deemed to be reliable, are not guaranteed for accuracy. Indexes shown are unmanaged and are not available for direct investment. The S&P 500 Index consists of 500 widely traded stocks that are considered to represent the performance of the U.S. stock market in general. The Consumer Price Index is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. It is one of the most frequently used statistics for identifying periods of inflation or deflation.
Equity securities are subject to stock market fluctuations that occur in response to economic and business developments. International investing involves special risks, including foreign taxation, currency risks, risks associated with possible differences in financial standards and other risks associated with future political and economic developments. Investing in emerging markets may involve greater risks than investing in more developed countries. In addition, concentration of investments in a single region may result in greater volatility. Investing in fixed income securities is subject to various risks, including changes in interest rates, credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. Investments in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities. Investments in high yield bonds offer the potential for high current income and attractive total return but involve certain risks. Changes in economic conditions or other circumstances may adversely affect a bond issuer's ability to make principal and interest payments. The municipal bond market is volatile and can be significantly affected by adverse tax, legislative or political changes and the financial condition of the issues of municipal securities. Interest rate increases can cause the price of a bond to decrease. Income on municipal bonds is free from federal taxes but may be subject to the federal alternative minimum tax (AMT), state and local taxes. There are special risks associated with investments in real assets such as commodities and real estate securities. For commodities, risks may include market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes and the impact of adverse political or financial factors. Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates and risks related to renting properties (such as rental defaults).
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