The continued concerns over oil prices, inflation, debt/deficit, and renewed hostilities in the Middle East kept a lid on equities in these last days of summer. Despite all the fear and loathing over higher long-term bond yields in the last week or two, the markets are only down a few percentage points from all-time highs.

 

As readers are aware, I have been cautious in August and September, although I would see any consolidation as a buying opportunity. That said, there are more than enough concerns plaguing the market at the moment to make anyone cautious.

 

Oil almost  $90 a barrel again, a re-engaged, shooting war of sorts in the Middle East; bond yields at highs not seen in years; and, of course, the midterm elections, which are now only 60 days away. It is the last event that keeps me looking over my shoulder the most.

 

It bears repeating that during the last three midterm elections in 2014, 2018, and 2022, the S&P 500 fell more than 10 percent during either August or September. All three times the sell-off occurred during the third week of the month. That doesn't mean it will, but it might.

 

In the meantime, the U.S. Treasury will begin buying back bonds beginning today, Sept. 4. And like clockwork, the bond vigilantes pushed up yields on long-dated Treasury bonds until the middle of the week before taking profits yesterday. Stocks, precious metals and the dollar all fell as a result.

 

While the financial media wailed and gnashed their teeth at this predicament, bond traders (of which there are few dummies) prepared to take profits and cover their shorts. Why take the risk that Treasury Secretary Bessent orders his guys to step in and start buying bonds beginning Friday or over the weekend? For those who missed it, take a gander at my latest columns on the bond market for more background on the present situation in that world.

 

That brings us to Friday, and the results of the latest non-farm payrolls report for August. With earnings results mostly over, and most trading desks with a "do not disturb" poster on their computer screens this week, the number took on added importance. Even though everyone knows by now the number will be inaccurate and subject to large revisions.

 

The job gains for August were 162,000, much better than the 50,000 forecasted. Wow! What a surprise, good employment numbers just two months before elections! Markets took the number in stride even though it builds the case for an interest rate hike by the Fed. I am still doubtful that will happen, although the Fed probably sees what I see — higher inflation data in the future.

 

The announcement that the U.S. will purchase one-fifth of Venezuela's crude oil reserves through a private company run by a buddy of the country's dictator (with a checkered past) was no surprise to me. I guess it is better than just stealing 20 percent of their oil reserves. 

 

Back in November of last year, in "The Return of Gunboat Diplomacy," I argued that President Trump had his eye on obtaining Venezuela's vast oil reserves as opposed to wanting regime change and the end of the non-existent smuggling of Fentanyl into the U.S.

 

I am ignoring all the social media posts about how this will bring down gas prices and refill the Strategic Petroleum Reserve (SPR) lickety-split. It won't. If you read my November column, you will understand that it will take years and many billions of dollars to repair Venezuela's energy infrastructure and further develop that country's oil reserves.

 

In addition, the crude coming out of Venezuela is heavy oil. Our SPR was built for light and medium crude. That's going to be a problem. Is the deal worth doing? Yes, and we will do it — provided both countries agree to cooperate over the coming decade.

 

We have had a difficult past with that country's leaders and their oil wealth for a long time. U.S. oil companies have pumped massive amounts of wealth and expertise into the Orinoco Basin only to see a series of expropriations, takeovers by the state, graft, bribes, and you name it. It's a risk, but that was the strategic objective of our gunboat diplomacy last year and could over time double our own oil reserves.

 

The three-day Labor Day weekend marks the end of Wall Street's summer. It would not surprise me to see a little government action in the days ahead to bolster bond prices, with yields hovering at the top of their range. On the energy front, the summer driving season is coming to an end. That may relieve some of the price pressure on gas prices. 

 

As for the markets, they will still be there on Tuesday, so focus instead on relaxing, fun, and the family. Happy Labor Day.

 

It was a lovefest, as strong quarterly results from Nvidia, the linchpin of all things AI, once again wowed investors. Not even Kevin Warsh's hawkish speech at Jackson Hole could make much of a dent in investors' enthusiasm.

 

But looks can be deceiving. Yes, all three indexes gained on the back of the semiconductor company's earnings, but 10 out of 11 equity sectors fell on Thursday. How can that be, you might ask? Simple, technology stocks are now the largest weighting in just about every index. As such, the results rippled through so many tech stocks that everything else was dragged up with it.

 

That said, investors' love/hate relationship with certain aspects of the world's rollout of the artificial intelligence ecosystem took a turn for the better this week. Why so much attention on Nvidia? Because the semiconductor giant is at the center and the hub of the world's build-out of the infrastructure of AI. It beat second-quarter earnings and revenue expectations handily. And, even more importantly, Jensen Huang, the chairman, also provided a better-than-expected outlook for the third quarter.

 

Unlike previous quarters, when the company's stock price fell despite strong results, NVIDIA jumped almost 10 percent this time. Its report also helped other AI chip stocks and the technology sector in general recover after several weeks of lackluster performance. The company still derives the lion's share of its revenues from hyperscalers like Google, Microsoft, and Amazon.

 

Investors have worried that these companies were already spending too much to build out their own infrastructure, as the trillions of dollars they are spending on and off their balance sheets have raised concerns. The revenues from this area more than doubled in Nvidia's second quarter.

 

Investors are also concerned that these hyperscalers are beginning to build their own chips to reduce their dependence on Nvidia's chips. But none of that seemed to matter this week as investors eyed the $20 billion stock buyback and the $6 billion in dividends ($ 0.25/share) the company returned to existing shareholders.

 

In the meantime, Oman and Iran are working on a deal to jointly "administer" the Strait of Hormuz. Tolls figure prominently in that discussion. On the U.S. side, the latest economic pressure is to convince those who are trading with Iran to stand down. If companies and countries ignore the American directive, they would then be excluded from the dollar-based global financial system.

 

Exactly when and how this could be accomplished is up for discussion. Given that China imports more than 90 percent of Iranian crude in non-U.S. dollar trade, their cooperation would be of paramount importance. So far, their response has not been encouraging. Oil traders are unimpressed and have held crude prices in the $80- to $83-barrel range all week.

 

As for last week's attempts to cap the climb in U.S. Treasury bond yields, Secretary Scott Bessent appears to have succeeded, at least over the last few days. Yields on the Ten-year bond have dropped about 10 basis points. Those waiting to see whether the Fed would jump in and back the Treasury secretary's play were disappointed.

 

Fed Chairman Kevin Warsch underscored his commitment to reducing inflation instead. His speech in Jackson Hole was taken seriously enough to put an interest-rate hike back on the table by the betting markets. On Friday mid-morning, the probability of a rate hike was back up to 50 percent for the September FOMC meeting. So, the Treasury and the Fed are somewhat at odds on where they think interest rates should be, at least on the long end.

 

The three major indexes notched a positive week. An almost 2 percent move in the Nasdaq, a 1.2 percent gain in the S&P 500 Index, with the Dow trailing with less than 1 percent, indicates buyers are still willing to chase markets.

 

Gold fell toward $4,500 an ounce, its lowest level in a week, as investors digested what was perceived as hawkish commentary from Warsh. Given its rise over the last few weeks, the Fed comments provided an excuse for some profit-taking in bullion and in most precious metals and mining stocks.

 

Investors turned their attention to the bond market this week as yields on long-dated U.S. Treasury bonds hit multi-year highs. The government needed to step in to curb what looked like a rout in both stocks and bonds.

 

Mid-week, the 30-year Treasury bond, as well as the benchmark 10-year, fell in price as yields hit 5.24 percent and 4.74 percent. To stem the fall in bond prices, U.S. Secretary Scott Bessent announced Wednesday morning before the open that he would double Treasury bond purchases beginning in September.

 

Both bonds and stocks rallied on the news, but by Thursday, bond yields rose again, and stocks fell as traders doubted the impact of Bessent's new measures. Aside from reducing the pace of higher yields (which it did), they figured that buying back some bonds would not do much to stem the fundamental reasons for the climb in interest rate yields.

 

Higher oil prices, higher inflation, higher deficits, higher debt (now $40 trillion), and no end to government spending made the move's impact no more than a pimple on an elephant's derriere. But the announcement did force the dollar lower (as intended). So far this quarter, the dollar has declined 2.5 percent; that's a large move in the currency world.

 

What it did do was convince investors that with this attempt to force interest rates down, inflation could be here to stay at least for the foreseeable future. That caused a spike in the prices of inflation hedges like gold, bitcoin, and most other commodities. Right now, the negative correlation (one goes up, the other goes down) between the U.S. greenback and gold is above 90 percent, while bitcoin's correlation is roughly 83 percent.

 

Gold gained more than 4 percent on the dollar move, while gold mining stocks posted high single- and double-digit gains. Bitcoin climbed much more than that, although some of the gains were attributed to the president's attempt to jawbone Congress to pass the much-delayed crypto Clarity Act legislation. What Trump didn't say was that the delay is largely due to concern that passing the legislation (as is) would allow politicians to benefit from their existing crypto investments. Read the president and his family and friends.

 

In another TACO moment, the president's tariff tantrums against Canada have come to naught (surprise, surprise). As for the Middle East, markets have tuned out the meaningless stream of assurances on Truth Social just like they have on the tariff diatribes. Oil moved higher this week as investors realized that there will be no grand Hormuz openings. That adds to the inflation story, which fuels the rise in long-term bond yields and is a large reason why we are seeing gold, other precious metals, and commodities in general come back to life.

 

Gold has broken out of its range and is now above $4,500. Energy has quietly become the strongest performing sector so far this year, substantially beating technology with far less attention. Keep your eye on those soft commodities as well. The combination of less fertilizer flowing out of the Middle East, climate change, and my prediction of a Super El Niño beginning next month ( see my column "El Niño Is Flashing Red Light for the World") is boosting prices in wheat, corn, sugar, etc.

 

As for equity markets overall, August is off to a positive start, but stocks are beginning to wobble. This week the S&P 500 lost 1.5 percent while Nasdaq fell almost 2.35 percent. In the coming week, we have Nvidia's earnings, and the Jackson Hole boondoggle — the Economic Policy Symposium of central bankers on Aug. 28. Investors are hoping the keynote speaker, Fed Chairman Kevin Warsch, will share his view on long-term bond yields and the move by his fellow former hedge fund manager, Scott Bessent.

 

A big reason I have been cautious on the markets in August and September is the upcoming midterm elections. Consider this: in the last three midterm election years, the stock market has declined by at least 10 percent beginning on Sept. 19, 2014, Sept. 20, 2018, and Aug. 16, 2022. Coincidence? Possibly, but three in a row does make a trend. History is only a guide, but in this case, I'm listening to how it rhymes with the past.

 

It wasn't difficult to predict that this week's July inflation data would be cooler. Last month, oil declined on the unfounded hopes of peace in the Middle East. That showed up in the numbers, but what about next month and beyond?

 

Oil is trading at $80-$82 a barrel. That is up more than $4 from July 1, 2026, or almost 5.5 percent. As such, I expect the August Consumer Price Index and the Producer Price Index to be higher than the results reported for July. And what happens if the Straits remain closed? Could we see $85, $90, or higher for a barrel of West Texas crude?

 

Nothing the Trump administration has tried has succeeded in unlocking the stalemate over the Straits of Hormuz. Intelligence assessments over the last few weeks indicate that without boots on the ground, the Navy could not open the Straits on its own. A land invasion would be difficult, if not impossible, and the severe loss of life unacceptable.

 

So, both sides are now playing a waiting game. The U.S. is applying continued economic pressure to Iran, hoping to force the hardline leadership to cave. The Iranians, long accustomed to economic pressure from the West, seem undeterred and have developed ways to grow their economy despite sanctions.

 

The regime has also become more entrenched thanks to the invasion. Rather than accede, they are content to use delaying tactics at the negotiating table while demonstrating their ability to strike militarily whenever they want. They know that the longer oil prices remain where they are or higher, the more likely it is that winning the mid-term elections will be difficult for Trump and the Republican Party. That could lead Congress to force an end to the war.

 

Given this background, why haven't we seen even higher oil prices? One reason is that oil demand is declining according to both OPEC and the International Energy Agency. The other reason could be that more oil is making its way out of the region than is reported. By some estimates, as much as 16 million barrels per day is making its way either through the Straits or through regional pipelines. That compares with approximately 20 million bbl. per day before the conflict.

 

Understandably, the U.S. financial markets have lost faith with constant U.S. assurances that a deal is right around the corner. We are in the ‘show me or shut up' stage of the war. Until there is a definitive opening of the Straits with tankers traveling through the passage at a pace like before the U.S. attack, the oil price will remain higher. How high that risk premium will go is at this point up to the Iranians.

 

The new CPI reading of 2.5 percent, higher than the inflation rate last year at this time but only a monthly gain of 0.2 percent from June's number, was in line with my forecasts. It seems clear to me that Wednesday's numbers were leaked. All the asset classes that would benefit from a weaker CPI number were up substantially well before the 8:30 a.m. data release.

 

The Producer Price Index was unchanged from June. From here, inflation moves higher in my opinion. As for the string of good inflation numbers we have had lately, I suspect the data will not sway the Fed members from their watch-and-wait stance.

 

Kevin Warsh, the new chairman of the central bank, has already said, "I do not find the current Fed policy of ‘data dependence' of much real value. We should care little about two numbers to the right of the decimal point in the latest government release." However, the June data should put to rest any fears that we will see a rate hike at the next meeting in September.

 

On a side note, readers who agree with my misgivings about the accuracy and leaking of government data should note that U.S. jobs numbers have been revised lower in 21 of the last 30 months by a total of minus-1.05 million jobs. This means an average of minus-35,067 jobs have been revised out of previously reported data each month over this period. June and May jobs numbers alone were revised down by a total of minus-103,000, the largest two-month downward revision since July 2025. It makes me doubt the trustworthiness of government data.

 

Stocks continued to climb higher on the back of the inflation data. As bets on an interest rate hike fall well below 50 percent, animal spirits are revving up, and many Wall Street strategists are talking about 8.000 as the next stop on the S&P 500 Index. Next week we could see some further consolidation before another run higher. I would buy the dip if we had a more substantial sell-off.

 

The U.S. economy shed 23,000 jobs in July. The forecasts were for a gain of 80,000. Some workers appeared despondent while investors were ebullient as the weaker data signaled less reason for the Fed to hike interest rates.

 

Employment figures for May and June were also revised lower, with a combined 103,000 job losses more than previously reported. Readers who have read my two-part columns on government data have been forewarned to take government numbers with a grain of salt.

 

It was a somewhat dismal report where the participation rate fell to 61.4 percent; it's the lowest since September 2021. The labor force participation rate measures the percentage of the civilian population age 16 and older that is either actively working or actively looking for work.

 

It is one of the best measures of the economy's labor supply. From the data, it appears clear that the labor pool is shrinking. In which case, employers must compete harder for workers, wages rise, and that can keep wage inflation elevated.

 

In any case, the 50+ percent expectations of an interest rate hike in September in the betting markets dropped immediately with the data release. Bond yields fell, along with the dollar, and guess what skyrocketed? Precious metals.

 

That's right, gold and silver are back from the dead! This week, gold rose 7.7  percent while silver notched an 11.6 percentgain. For the most part, gold has been trading in a range for months. As oil prices gained, gold lost value. Silver fared even worse. Add in the rise in interest rates and the dollar (both kryptonite for precious metals), and it was close to a perfect storm for that asset class.

 

Now we seem to be reversing those trends, at least in the short-term. The Fed is on hold or appears to be for now, given that the last two Consumer Price Index CPI) reports have been benign. A third CPI report next Wednesday, August 12th, looks to be weaker as well. Weaker inflation numbers and now weaker job data put rate hikes on hold and may even push yields and the dollar even lower.

 

In addition, Mainland China is hoping to establish Hong Kong as a major trading market for gold among other metals. Remember, gold is entirely outside the global credit system. It cannot be frozen, sanctioned, or inflated away by another government's choices. Russia knew that and amassed its own holdings before it invaded Ukraine.

 

The People's Bank of China has been building up physical gold inventories in Hong Kong over the past several months after launching its Precious Metals Central Clearing Company. In June, they added 14.93 tons of gold. That's their single largest purchase since 2023.

 

I suspect this is adding upward pressure to the price of precious metals. They have slowly been moving their own substantial gold holdings (2,346 tons) from where it is kept in the London Metals Exchange back home to support their efforts in Hong Kong. Bottom line, Beijing is stocking the exchange it built rather than deepening the one its geopolitical rivals dominate.

 

My fears that August would turn out to be a month to be cautious seem ill-advised as we close out the first week. My caution has and will continue to be dependent on the conflict in the Middle East. In the meantime, the rotation back into technology continues. However, it is not at the expense of other areas.

 

The three major averages had healthy gains to finish the week, with the NASDAQ the winner, up 4.90 percent. The S&P 500 and small-cap Russell indexes each gained more than 3 percent while the Dow finished just shy of that.

 

Earnings results were the lynchpin of these moves. It also helped that we have seen a 9 percent decline in the price of oil. The hope that the U.S. will somehow negotiate a successful opening of the Straits of Hormuz was the flavor of the week. This could change next week; otherwise, the S&P 500 Index seems destined to make a record high.