Bond Yields Hit Multi-Decade Highs as Business Activity Surges and AI-Linked Shares Resume Selloff

Weekly Market Commentary | Week of Aug 24th, 2026

A Recap of Economic and Financial Trends from the Prior Week

By: Michael Horvath, The Quinnipiac University Global Economics Research Team

Last Week in Review

• The 30-year Treasury yield reached its highest level since 2007 on fiscal concerns and heavy debt issuance before partially retracing

• All major U.S. indexes declined as renewed Middle East tensions, higher oil prices, and semiconductor selling weighed on sentiment, with the S&P MidCap 400 leading losses at -2.46% and the Dow Jones Industrial Average holding up best

• European and Japanese markets fell broadly on global bond yield pressure and geopolitical uncertainty

Economic Recap

U.S. business activity accelerated sharply in August, with the S&P Global Flash Composite PMI rising to 56.0 from 54.5 in July, its highest level since April 2022, driven by services strength where the PMI jumped to 56.8, while the manufacturing PMI eased to 53.2. Employment increased at its fastest pace since January 2025 and business confidence improved, though input costs remained elevated amid higher energy prices. The Empire State Manufacturing Index and Philadelphia Fed Manufacturing Index both came in ahead of consensus estimates for August, reaching their highest levels since 2021. Minutes from the Fed's July meeting indicated that participants generally expected inflation to moderate through the remainder of the year but acknowledged that their inflation outlooks were highly uncertain and that inflation risks were skewed to the upside, and that policy tightening would likely be necessary if inflation did not decline. Pending home sales dropped 2.3% month over month in July to the lowest level since January, housing starts declined more than 12% from June to a seasonally adjusted annual rate of 1.239 million, and the average 30-year fixed mortgage rate was 6.65% for the week.

Internationally, the eurozone flash composite PMI came in at 52.1 in August, above both expectations and the prior month's 52.0, with new orders increasing and export demand returning to growth for the first time in four and a half years. Germany's ZEW Indicator of Economic Sentiment climbed to 34.2 from 26.3 in July on improved corporate earnings, government infrastructure spending, and resilient exports, while France's manufacturing business climate index rose to 103, its highest level in seven months. In the UK, payrolled employees fell by 13,000 in July, the sixth consecutive monthly decline, while the unemployment rate held at 4.9% in June, and the inflation rate rose to 2.9% in July, in line with expectations and reflecting the hike in the energy price cap. In Japan, GDP expanded just 1.1% on an annualized basis in Q2, below the consensus expectation of 2.0% and down from a revised 1.9% in Q1, dragged by weaker capital expenditure and private consumption, while the nationwide core CPI rose 1.8% year over year in July, accelerating for the second consecutive month. In China, industrial output grew 4.5% year over year in July, below expectations, retail sales increased only 0.6%, fixed asset investment slumped 6.7% over the January through July period, and real estate investment shrank 19.2% year over year through the first seven months, with the State Council announcing measures to allow residents to withdraw Housing Provident Fund savings for broader purposes starting September 20.

Market Recap

Source: JPMorgan Asset Management, “Weekly Market Recap” (August 24^th, 2026). (Chart © JPMorgan Asset Management. Chart used under fair use for educational commentary by The Quinnipiac Global Economics Research Team.)

Major U.S. equity indexes finished the week lower as elevated Treasury yields, renewed U.S.-Iran tensions, higher oil prices, and weakness in semiconductor and AI-related shares broadly weighed on sentiment, alongside mixed takeaways from retail earnings reports. The S&P MidCap 400 led declines, dropping 2.46%, while the Nasdaq Composite shed 2.02% and the Russell 2000 fell 1.60%. The Dow Jones Industrial Average held up best, falling 0.78%. The S&P 500 declined 1.39% to 7,674 and is up 12.95% year to date, while the Nasdaq is up 13.07% year to date. At the style level, the Russell 1000 Growth fell 2.31% on the week and is up only 3.77% year to date, while the Russell 1000 Value declined a more modest 0.50% and is up 23.34% year to date, sustaining its substantial year-to-date advantage. Long-term U.S. Treasury yields rose early in the week, with the 30-year bond reaching its highest level since 2007, driven by fiscal concerns and heavy government and corporate debt issuance tied to AI capital spending. Treasuries rallied midweek after the Treasury Department announced it would at least double the size of its planned long-term debt buybacks, though much of the move reversed late in the week as investors questioned whether the program would be sufficient to offset broader yield pressures.

Internationally, the MSCI EAFE declined 0.54% and is up 14.58% year to date, while MSCI EM gained 1.24% and is up 24.49% year to date. The pan-European STOXX Europe 600 fell 0.56% in local currency terms, with Germany's DAX declining 1.15%, France's CAC 40 falling 1.76%, and Italy's FTSE MIB down 1.71%, while the UK's FTSE 100 bucked the trend, rising 0.62%. Japan's Nikkei 225 fell 3.93% and the TOPIX declined 3.10% as technology and semiconductor stocks led the risk-off move, while the 10-year JGB yield climbed to a 30-year high of approximately 2.93% before retreating to approximately 2.88%. In China, the Shanghai Composite fell 0.56% and the CSI 300 declined 1.01%, while Hong Kong's Hang Seng advanced 3.55% led by health care strength. Shares of humanoid robot maker Unitree Robotics surged 460% on their Shanghai trading debut.

Market Themes

AI and Semiconductor Weakness Persists as Bond Yields Pressure Long-Duration Assets

The sell-off in long-term U.S. Treasury bonds was driven by a combination of rising fiscal concerns and heavy government and corporate debt issuance, including financing tied to AI capital spending, alongside higher oil prices that added to inflation concerns. The combination of rising yields and a resurgent Middle East risk premium created a particularly difficult backdrop for long-duration growth assets, with semiconductor and AI-linked shares resuming their pullback from recent highs as the cost of capital repriced higher. The Philadelphia Semiconductor Index declined sharply on the week, extending a volatile summer that has seen the sector whipsaw between strong earnings-driven gains and valuation-driven corrections as investors weigh the pace of AI revenue generation against the scale of capital expenditure commitments. Retail earnings provided a mixed read on the consumer, with discounters broadly outperforming while mid-market and discretionary names showed signs of spending fatigue. The Treasury Department's announcement that it would at least double planned long-term debt buybacks was interpreted by some market participants as an acknowledgment of structural pressure in long-dated markets, though the relief proved short-lived as investors questioned the program's scale relative to issuance needs.

China's Broad Activity Slowdown and Unitree's Debut Highlight the Bifurcated Investment Landscape

China's economy began the second half of 2026 on a soft note, with industrial output, retail sales, and fixed asset investment all moderating in July. Real estate investment shrank 19.2% year over year through the first seven months, and new home prices dipped 0.1% month over month in July, though authorities continued to roll out supportive measures. Against this backdrop of broad macroeconomic softness, shares of Unitree Robotics surged 460% on their Shanghai trading debut, with the IPO more than 8,000 times oversubscribed by retail investors, reflecting intense investor enthusiasm for China's embodied AI sector, which is one of six future industries outlined in the country's latest five-year plan. The contrast between a sputtering property sector and consumer recovery on one hand, and a white-hot AI and robotics equity market on the other, encapsulates the bifurcated investment landscape that has characterized Chinese markets throughout 2026. Hong Kong's Hang Seng advanced 3.55% on the week, led by health care strength, diverging sharply from mainland benchmarks, as offshore investors gravitated toward sectors with clearer near-term earnings visibility rather than early-stage AI speculation.

Chart of the Week

Source: Apollo Chief Economist, with data from Institute for Supply Management (ISM), Bloomberg, and Macrobond, "AI: No Signs of Unemployment Rising in the Philippines or India," August 2026. (Chart © Apollo Chief Economist. Used under fair use for educational commentary by The Quinnipiac Global Economics Research Team.)

The chart plots unemployment rates for the Philippines and India on a monthly basis from January 2021 through mid-2026. The Philippines unemployment rate declined steadily from approximately 9% in early 2021 to approximately 5% by mid-2026, with the series showing a clear and sustained downward trend over the period. India's unemployment rate, which spiked sharply to nearly 12% in mid-2021, also trended lower over the full period, settling at approximately 6.5% to 7% through most of 2025 and into 2026. Both series show no meaningful uptick in unemployment as of the most recent data, despite the widespread adoption of AI tools across service and technology sectors in both economies. The chart illustrates Apollo's finding that AI adoption has not yet translated into measurable labor market disruption in two of the world's largest providers of business process outsourcing and technology services, offering a counterpoint to concerns that AI-driven automation will rapidly displace workers in emerging economies most exposed to the trend.

Market Outlook

The primary focus for markets this week is the Federal Reserve's Jackson Hole Economic Symposium, where Chair Warsh is expected to speak on the economic outlook and monetary policy. Given the Fed's decision to abandon forward guidance at its June meeting, investors will scrutinize Warsh's remarks for any signals on the September rate decision, particularly in the context of August's strong PMI data and persistently elevated inflation expectations. U.S. personal income and spending data due Friday will provide a timely read on whether consumer resilience is holding into the end of summer, while the second estimate of Q2 GDP will be closely watched for any revisions to the growth picture. Japan's Tokyo-area CPI and retail sales data will be monitored for further evidence of the inflation and consumption dynamics that will inform the Bank of Japan's next policy move. In China, official manufacturing and services PMI data will provide the first read on whether the July activity slowdown is extending into August or beginning to stabilize.

Calendar Events

Economic Data:

Aug. 24 (Mon): U.S. New Home Sales (Jul)

Aug. 25 (Tue): U.S. Consumer Confidence (Aug); Japan Retail Sales (Jul)

Aug. 26 (Wed): U.S. Q2 GDP second estimate; Jackson Hole Economic Symposium begins

Aug. 27 (Thu): U.S. Initial Jobless Claims; Tokyo CPI (Aug); Japan Industrial Production (Jul)

Aug. 28 (Fri): U.S. PCE and Personal Income and Spending (Jul); China Official PMIs (Aug)

Major Corporate Earnings:

Aug. 25 (Tue): Zoom Communications Inc. (Q2 2027); DICK’S Sporting Goods (Q2 2026); Bank of Montreal (Q3 2026)

Aug. 26 (Wed): NVIDIA Corporation (Q2 2027)

Sources

J.P. Morgan Asset Management. "Weekly Market Recap PDF." J.P. Morgan Asset Management. https://am.jpmorgan.com/content/dam/jpm-am-aem/americas/us/en/insights/market-insights/wmr/weekly_market_recap.pdf

J.P. Morgan Asset Management. "Economic Update." J.P. Morgan Asset Management. https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/market-updates/economic-update/

T. Rowe Price. "Global Markets Weekly Update." T. Rowe Price Insights. https://www.troweprice.com/personal-investing/resources/insights/global-markets-weekly-update.html

Apollo Chief Economist. "The Daily Spark." Apollo. https://www.apollo.com/wealth/insights-news/insights/daily-spark

MarketWatch. "Economic Calendar." MarketWatch. https://www.marketwatch.com/economy-politics/calendar

Yahoo Finance. "Earnings Calendar." Yahoo Finance. https://finance.yahoo.com/calendar/earnings/