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August 2026 Financial Market Update

July brought mixed signals for investors to sort through. Inflation data pointed to cooling prices in June, while the labor market showed signs of slowing without a material increase in unemployment. The Federal Reserve also grew more cautious while leaving interest rates unchanged.

At the same time, the U.S.-Iran conflict raised concerns about energy supplies and contributed to volatile oil prices, while high-momentum stocks ceded ground as money shifted into other sectors.

Here’s how it all shook out for the month:

Major U.S. Stock Indices

Market leadership shifted throughout the month. Smaller companies and value-oriented stocks advanced while AI and semiconductor stocks pulled back, although strong earnings reports from Microsoft and other technology heavyweights trimmed some losses.

For the calendar month ended July 31, 2026, based on price returns that exclude dividends:

  • The S&P 500 declined 0.13%.
  • The Nasdaq-100 declined 6.61%.
  • The Dow Jones Industrial Average increased 0.32%.

Index performance represents the percentage change between each index’s closing level on June 30, 2026, and its closing level on July 31, 2026. Figures have been rounded to two decimal places. Indexes are unmanaged and cannot be invested in directly.

The Macro Outlook

Economic growth slowed but did not stall. Second-quarter GDP, released July 30, grew at a 1.5% annualized pace, as rising imports offset otherwise steady consumer spending. Retail activity held up through June even as shoppers grew more price-sensitive and confidence wavered. Consumer sentiment reached a five-month high in July, though renewed Middle East tensions and rising gasoline prices could make the improvement difficult to sustain.

The labor market showed signs of cooling without a material rise in unemployment. June payroll gains, released July 2, came in below expectations, while the unemployment rate edged down from 4.3% to 4.2%. Downward revisions to prior months’ payroll figures and a decline in labor-force participation also pointed to softer hiring conditions rather than a sharp deterioration in the labor market.

Jobless claims remained low, providing little evidence that layoffs were accelerating. Slower hiring and an unemployment rate that remained broadly stable, alongside resilient consumer spending, paint a picture consistent with a soft landing—one in which growth decelerates gradually rather than deteriorating quickly.

Inflation eased, yet Fed Chair Warsh is not declaring victory. June’s inflation report showed a broad enough decline to raise hopes that policymakers could hold off on further tightening, and traders pared back some expectations for near-term rate increases. Warsh offered limited forward-looking guidance at the press conference following the Fed’s July 28–29 meeting. Underlying price pressures remain above the Fed’s target, and the gap between those pressures and market expectations is likely to keep driving the policy debate until officials provide additional guidance.

Energy remains a potential risk to the inflation outlook. A rebound in oil prices tied to renewed fighting between the United States and Iran has raised concerns that supply disruptions could slow or partially reverse recent inflation progress.

That development has also shifted the market conversation. Rather than focusing primarily on when the Fed might begin cutting rates, investors are now weighing whether renewed energy-price volatility could keep policy tighter for longer or revive discussion of additional tightening. The shift illustrates how quickly policy expectations can change when energy-price volatility returns.

The Bottom Line

The economy is still expanding, and inflation has eased by some measures, but neither trend is decisive enough for the Fed to declare the fight against inflation won. Moderating growth, combined with price pressures that have not fully retreated, means policy uncertainty will likely persist into the fall.

The market looks healthier than it did earlier this year, with leadership broadening beyond a handful of technology heavyweights. However, those companies still carry an outsized influence on index performance, and that concentration means sentiment can reverse quickly if they stumble.

For portfolios, the approach has not changed. Staying diversified and maintaining a long-term outlook can help investors navigate a market that remains heavily influenced by a single growth theme, particularly while inflation and the Fed’s next move remain uncertain.

As always, please do not hesitate to reach out with any questions. We are here to be a resource for you.

Resources

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Board of Governors of the Federal Reserve System. “Federal Reserve Issues FOMC Statement.” Federal Reserve, 29 July 2026, https://www.federalreserve.gov/newsevents/pressreleases/monetary20260729a.htm.

Board of Governors of the Federal Reserve System. Transcript of Chairman Warsh’s Press Conference. 29 July 2026, https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20260729.pdf.

Cox, Jeff. “Here Are the Five Big Takeaways from This Week’s Fed Meeting.” CNBC, 29 July 2026, https://www.cnbc.com/2026/07/29/here-are-the-five-big-takeaways-from-this-weeks-fed-meeting.html.

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Klebnikov, Sergei. “The 2026 U.S. Labor Market Is ‘Not Collapsing’: Jobs, Unemployment, Wage Growth and Hiring Trends So Far.” J.P. Morgan Wealth Management, 14 July 2026, https://www.chase.com/personal/investments/learning-and-insights/article/labor-market-2026-jobs-unemployment-wage-growth-trends.

Mutikani, Lucia. “Lower Gasoline Prices Restrain U.S. Retail Sales, Underlying Momentum Remains.” Reuters, 16 July 2026, https://www.reuters.com/business/us-retail-sales-rise-marginally-june-2026-07-16/.

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Peterson, Matt. “Even If the Fed Holds Rates Steady, Here’s Why Kevin Warsh’s Press Conference Matters More than the Decision Itself.” CNBC, 28 July 2026, https://www.cnbc.com/2026/07/28/warsh-fed-rate-decision-trump-powell-analysis.html.

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Emerald Advisors, LLC is a registered investment adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  Investments involve risk and, unless otherwise stated, are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.

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