S&P 500 Retreats as Bond Market Bear Scares Investors

The S&P 500 (Index: SPX) dropped almost 1.4% from its previous week's close to wrap up the trading week ending on Friday, 21 August 2026 at 7,678.76.

Rising bond yields was perhaps the biggest driver of stock prices during the week, which comes as the U.S. government is increasingly having to compete with Big Tech to borrow money as the company's seeking to build out the infrastructure to support the expansion of Artificial Intelligence (AI) systems are borrowing big to do it.

One outcome of that dynamic is expectations of higher interest rates. The CME Group's FedWatch Tool projections of the expected future for how the Fed will set the Federal Funds Rate changed little in the past week. It anticipates a 60% chance the Fed will act to hike this core interest rate to a target range of 3.75-4.00% on 28 October (2026-Q4), while giving a much stronger 98% chance this rate will be in effect on 9 December (2026-Q4). Beyond that, the FedWatch Tool now anticipates another quarter point rate hike on 28 April (2027-Q2).

Meanwhile, stock prices behaved almost exactly as would be expected if investors were tightly focusing on 2027-Q1 as they set the level of the week's stock prices. The latest update of the alternative futures chart shows that outcome as the S&P 500's trajectory closely paced the dividend futures-based model's projection associated with investors fixing their attention on the distant future quarter of 2027-Q1.

Investors had quite a lot of other new information to absorb during the trading week. Here is the summary of the week's market-moving headlines:

Monday, 17 August 2026

• Signs and portents for the U.S. economy:
• 30-Year Treasury Yield hits 5.30%, its highest level since 2007
• Oil settles up over $2 as Iran war stalemate stokes supply concerns
• Brent oil rises above $90 as Iran rules out interim deal extension, threatens to escalate conflict
• Depleted strategic oil reserve nears level that raises concerns about damage to caverns, operations
• Economists predict Fed minions to leave interest rates unchanged in rest of 2026:
• Fed to hold interest rates this year, economists say, sticking to their view
• Bigger trouble, stimulus developing in China:
• China's recovery sputters as consumption, output lose steam
• China investment slump deepens as economy shows signs of weakness
• China new home prices stagnant in July as demand stays weak
• China's premier calls for stabilising external demand as growth sputters
• Bigger trouble developing in Japan, BOJ minions catch a break in effort to prop up Japan's currency:
• Japan Q2 growth misses forecasts on weaker spending, investment
• Japan second-quarter GDP grows 1.1% on an annualized basis, missing expectations
• Yen edges up as traders push back Fed rate hike bets
• Japan’s 10-year bond yield hits three-decade high
• Bigger trouble developing in Eurozone:
• Europe's heatwaves expose insurance gap as business losses mount
• China’s unplanned surpluses put EU in trade bind
• ECB minions say AI stocks are due for a fall:
• AI market correction is coming, ECB blog predicts
• Wall Street finished lower as investors look ahead to retail earnings
• Wall Street indexes slip as oil prices rise, retail results awaited

Tuesday, 18 August 2026

• Signs and portents for the U.S. economy:
• As US debt mounts, investors demand higher returns to lend
• US 30-year yields hit highest level since 2007 as war, oil worries fester
• US yields edge lower despite Iran worries, broader sell-off
• Oil closes at three-week high as hopes of US-Iran peace deal fade
• US diesel crack surpasses $100 a barrel for the first time on supply disruptions
• Fed minions say their monetary policy is "accommodative":
• One neutral rate estimate suggests Fed's policy stance is accommodative, paper says
• Bigger trouble, stimulus developing in China:
• China's easing steel output reflects divergent demand drivers
• China has one good reason for its credit slump
• China’s 10-year bond yield falls to 13-month low
• Bigger trouble developing in Japan:
• As Japanese Bond Yields Soar, Unrealized Losses At Life Insurers Hit $200 Billion
• Bigger trouble developing… everywhere:
• Global bond markets put governments on notice over fiscal, inflation risks
• Wall Street finished in the red as attention remains on the Middle East
• Tech selloff weighs down Wall Street as bond yields climb
• Explainer: Treasury yields are rising - why does it matter?

Wednesday, 19 August 2026

• Signs and portents for the U.S. economy:
• US housing market remains under pressure in July; factory output rises
• Oil extends climb on prolonged Hormuz export uncertainty
• Demand from US data-center boom radiates out through factory supply chains
• US 30-year Treasury yields drop from multi-year highs
• Treasury Secretary Bessent doubles US long-bond buybacks in the face of surging yields
• VIEW Yields fall after US Treasury says it will double some bond buybacks
• Port of Los Angeles posts high July volume, helped by retail goods, AI project parts
• Fed minions worried about inflation back in July 2026, just realized increase in productivity blunted it:
• Fed policymakers' inflation concerns increased at July meeting, minutes show
• Boston Fed paper says strong productivity blunted tariff inflation impact
• Bigger trouble developing in China:
• China seen holding loan rates steady in August despite economic weakness
• China robot makers seek to turn humanoid hype into useful work
• Bigger trouble developing in Japan:
• Japan bond yields near 3% as inflation, fiscal worries mount
• Japan has few answers as bond rout puts fiscal plans at risk
• Wall Street ended higher, and yields dipped after the latest Treasury Department announcement
• Wall St rises as yields ease, Moderna lifts healthcare stocks

Thursday, 20 August 2026

• Signs and portents for the U.S. economy:
• US Treasury buyback briefly eases bond rout, but debt worries persist
• Treasury's Bessent says upsized bond buybacks could increase further
• Oil settles up more than 2% after Trump threatens countries supporting Iran
• U.S. military says it aided passage of 660 million barrels of oil through Strait of Hormuz since May
• Fed minion says they're not sure how Fed will set U.S. interest rates in September 2026:
• Fed's Musalem says on CNBC he won't prejudge rate call view for September FOMC
• Bigger trouble developing in and out of China:
• China boosts imports of Russian crude, stymieing India's refiners
• BOJ minions / Bigger trouble developing in Japan:
• Japan's exports surge on chips demand, imports hit record on oil costs
• Bigger trouble developing in the Eurozone:
• Europe’s oil refining capacity set to shrink by 20% over next decade
• Wall Street ended lower as Walmart dragged down retail and oil climbed
• Wall Street sinks as bond yields rise, Walmart results disappoint
• Walmart sales growth slowdown tests consumer resilience, shares slide 9%

Friday, 21 August 2026

• Signs and portents for the U.S. economy:
• US service sector fuels acceleration in business activity, S&P Global says
• Oil rises as Trump threatens sanctions on Iran partners
• US Mortgage Rates Fall for Second Straight Week, to 6.65%
• Fed minions try not to upset their real boss:
• Fed officials tread carefully after Treasury's bond market intervention
• BOJ minions potentially planning rate hikes up through July 2027:
• A date on the calendar could shape the BOJ's endgame on interest rates
• Japan's core inflation accelerates in July, bolsters case for rate hike
• Bigger trouble developing in Eurozone (hawkish ECB minions):
• Traders are bracing for an increasingly hawkish ECB
• S&P 500 drops for week as Tech leads sector losses
• Dow surges 500 points Friday, but index posts back-to-back weekly losses
• Gains in AI company stakes juice second-quarter earnings for S&P 500
• US corporate AI debt surge tests investor limits as fatigue emerges
• Wall Street ended higher as gold and Bitcoin rallied

The Atlanta Fed's GDPNow tool anticipates +4.0% real GDP growth for the U.S. economy in 2026-Q3, dipping from the +4.3% annualized growth it projected a week earlier.

Image credit: Microsoft Copilot Designer. Prompt: "An editorial cartoon of a Wall Street bull holding up a sign that says 'RISING BOND YIELDS' who is growling at scared investors"