Financial News for the Week of August 7th 2026

The first week of August kicked off with stocks hitting fresh all-time highs as oil prices retreated on news of a potential near-term deal to restart transit through the Strait of Hormuz. The deal is reportedly being negotiated between Oman and Iran, but a formal agreement between all parties has yet to be announced as of the time of writing. The S&P 500 rose 3.5% on the week as oil prices fell by 10% and the U.S. 10-year Treasury yield ended the week roughly 10 basis points lower.

Higher oil prices have contributed to stronger nominal manufacturing activity in 2026, while also helping to push the ISM Manufacturing PMI to a four-year high in July. However, there are reasons to view the survey’s strength with some caution. The ISM Prices Paid Index remains near a four-year high (Chart 1), indicating elevated input cost pressures across the manufacturing sector. At the same time, a portion of the improvement in the headline PMI reflects slower supplier deliveries, which the survey interprets as a sign of stronger demand, but can also be consistent with supply-chain constraints. Taken together, the survey continues to point to an expansion in manufacturing activity, though likely at a more moderate pace than implied by the headline reading.

The larger services sector also continued to expand in July according to the ISM report, with new orders and business activity both picking up. However, the report was more concerning for the Federal Reserve, as the employment index slipped back into contraction territory and the prices paid index remained elevated.

This concern was somewhat enhanced by the headline report for July employment, which showed a loss of 23k jobs. However, looking into the details, the decline was entirely driven by an outsized loss in local government educational services. This is likely driven by unaccounted for seasonality coinciding with the summer break for schools. The private sector added 30k jobs during the month, on par with the prior month trend (Chart 2). In addition, the unemployment rate ticked lower to 4.1%, consistent with a labor market that is steady overall.

Taken together, the Federal Reserve is faced with an economy that has a stable labor market, but persistent excess inflationary pressures. Among the three voting members of the FOMC that we heard from this week, Minneapolis Fed President Kashkari was the most vocal in support of policy tightening, noting he dissented in favor of a rate hike at the July meeting. Philadelphia Fed President Paulson and Governor Lisa Cook were more measured but noted that persistent inflation could require higher rates. After the employment report, odds of rate hike in September fell from roughly 50/50 to 60% odds for no hike.

With elevated uncertainty over what policy decision will be made by the Federal Reserve at their next meeting, next week’s CPI print for July is likely to be closely monitored. Consensus expectations are for an acceleration in total inflation to 3.5% year-on-year, consistent with the uptick in energy prices during the month. Currently we don’t expect a rate hike in September, but if current inflation trends prove persistent, then policy action may be required.