August 14, 2026
Tension in the Middle East was a persistent theme this week. Negotiations between the US and Iran remained at a stalemate while attacks resumed in the Straits of Hormuz and Bab el-Mandeb, pushing gold and crude oil prices higher. West Texas Intermediate (WTI) crude is trading around $82 per barrel as of this morning. The renewed geopolitical risks accompanied a mixed batch of economic data, headlined by key inflation metrics and sharp drops in retail sales and consumer sentiment.
Inflation data came in largely in line with consensus expectations, with the July Consumer Price Index (CPI) rising 0.1% on the month and 3.4% from a year earlier, down from June’s 3.5% annual pace. Core CPI also matched expectations at 0.2% month-over-month and 2.5% year-over-year. The Producer Price Index (PPI) was softer than forecast, unchanged on the month versus expectations calling for a 0.2% increase. Retail sales told a weaker story compared to June; July’s Advance Retail Sales report fell -0.6% month-over-month, well below the 0.1% increase economists expected, with the control group down -0.4%. The decline was partly due to a decline in gasoline prices, along with a drop in online sales as Amazon Prime Day likely pulled some sales forward into June. The University of Michigan’s preliminary August sentiment reading fell sharply to 51.0 from 55.2, missing expectations of 55.0, while one-year inflation expectations edged up to 4.3%. Consumers are showing some signs of stress as wage growth and the labor market are softening alongside persistent inflation.
Treasury yields diverged and the yield curve steepened this week. At the time of this writing, the 2-year yield is approximately 4.17%, down 2 basis points, while the 10-year is trading at approximately 4.68% versus 4.65% a week ago, leaving the 2-year to 10-year spread near 51 basis points, up from 46 basis points as of last Friday. The S&P 500 is trading approximately 0.6% higher on the week near 7,800, extending its recent run of record highs.
The Chandler team continues to hold a steepening bias and expects the Federal Open Market Committee (FOMC) to hold the federal funds rate in its current 3.50% to 3.75% target range through the remainder of 2026. The market will pay close attention to the upcoming Kansas City Fed’s annual Jackson Hole Symposium which will be held August 27-29, featuring new Fed Chair Kevin Warsh as its keynote speaker. Chandler continues to manage portfolios with an emphasis on high credit quality, liquidity, and disciplined duration and credit risk management.
Next Week: Empire Manufacturing, Housing Starts, FOMC Meeting Minutes, Leading Economic Index (LEI)
Written by Genny Lynkiewicz, CFA, Senior Portfolio Manager