Long-term interest rates rose again in August, continuing the upward trend that began in July. The interest rate on the 10-year government bond reached a 17-month high of 4.76%. What's more, even though many areas of the economy remain relatively strong, inflation is still rising, and consumer confidence is falling. 1Because of all that, all eyes are now on the Federal Reserve.
Although the central bank took no action at its August meeting, most market analysts expect Chairman Kevin Warsh to announce an increase in short-term interest rates at the Fed's next meeting, scheduled for September 15 and 16. In fact, it's likely that Wall Street has already priced in the rate hike. That's probably one reason the stock market rebounded strongly in August after a slight dip in July.
Once again, the indexes heavily weighted by tech companies saw the biggest gains. The S&P 500 rose by 2.7% while the Nasdaq added 4.2%. The Dow Jones Industrial Average, which has fewer tech companies, saw a smaller gain of 1.5%. 2Of course, none of this is really new.
Bullish Resilience
The stock market — thanks mainly to the AI tech boom — has managed to remain resilient all year despite rising inflation, signs of slowing 3growth, and the emergence of numerous geopolitical issues with economic impacts. For example, even as the war in Iran continues to fuel the inflation problem, in August the trade war with Canada escalated in a way that could make matters worse.
Ultimately, though, Wall Street has managed to shrug off such issues and remain at record highs. That's partly because, despite high inflation and slowing growth, other areas of the economy — such as wages and unemployment — have remained more stable,4and no clear warning signs of a recession have yet emerged.
Still, it seems likely that, at this point, investor optimism is being driven at least partly by an expectation that the Fed will finally take action to address some of the economy's most pressing problems, namely inflation.
Although the Fed has no power over long-term rates, which are determined by the markets, they do control short-term rates. Historically, increasing short-term rates has been the Fed's go-to move for addressing high inflation, which is why a rate hike is now so widely expected — probably this month.
Your Portfolios
Naturally, since — as Warren Buffett rightly noted — higher interest rates generally decrease the value of all invested assets, the continuation of rising rates in August will be reflected in your latest statements. Since most of you are invested in our more conservative portfolios of bonds and bond-like instruments, you'll likely see your values down to some extent depending on your individual holdings.
Of course, this is also nothing new because the markets fluctuate, and that's one of the reasons you chose an income-first, growth-second strategy in the first place. With this strategy, regardless of whether your asset values go up or down on paper due to market changes, you can rest assured that your interest and dividend income will remain steady and unaffected.
And if you're reinvesting all or some of your interest and dividends, you should keep in mind that these kinds of market challenges often create buying opportunities that may help you increase your future growth and income potential.
So, if you'd like to talk more about that, or if you have any other questions or concerns at all, never hesitate to reach out. Whether it's something we can address on the phone or that requires scheduling a meeting, we are always available and happy to help.
Have a great September!
Sources:
- https://www.nasdaq.com/articles/august-2026-review-and-outlook
- https://www.cnbc.com/2026/08/24/stock-market-today-live-updates.html
- https://www.bea.gov/data/gdp/gross-domestic-product
- https://www.federalreserve.gov/newsevents/speech/waller20260903a.htm
September Recipe: Lemon Garlic Shrimp
Ingredients
- 2 tablespoons olive oil
- 1 pound uncooked shrimp (26–30 per pound), peeled and deveined
- 3 garlic cloves, thinly sliced
- 1 tablespoon lemon juice
- 1 teaspoon ground cumin
- 1/4 teaspoon salt
- 2 tablespoons minced fresh parsley
- Hot cooked pasta
Directions:
1. In a large cast-iron or other heavy skillet, heat oil over medium-high heat; sauté the shrimp for 3 minutes. Add garlic, lemon juice, cumin, and salt; cook and stir until shrimp turn pink, 2-3 minutes. Stir in parsley. Serve with pasta.
The Lemon Garlic Shrimp recipe: Lemon Garlic Shrimp with Pasta Recipe