“The best way to keep something bad from happening is to see it ahead of time... and you can’t see it if you refuse to face the possibility.”
-William S. Burroughs
COMMENTARY
The S&P 500 closed at 7,686.14 on August 31, 2026, 1.4% below its record close of 7,798.99 set on August 13. After a first-week rally amid strong second-quarter earnings growth, the index moved sideways through the remainder of the month. The Nasdaq Composite Index closed 2.7% below its record close of 27,093.90, achieved nearly three months ago on June 2.
The New York Fed Staff Nowcast estimates third-quarter real GDP growth at 2.2%. Last week’s data releases lowered the estimate by 0.1 percentage point. The Atlanta Fed’s GDPNow estimate is considerably higher at 4.6%. It is down from its initial July estimate of 5.0%. We continue to forecast 2026 real GDP growth of roughly 2%.
The Conference Board’s Leading Economic Index (LEI) rose 0.2% in July to 99.5. Over the six months ending in July, the LEI increased by 0.2%, marking the first positive six-month growth rate in more than four years. July’s increase was supported by jobless claims and building permits, which more than offset continued weakness in consumer expectations. The Conference Board forecasts 2026 real GDP growth of 1.9%.
Margin debt fell 5.6% in July to $1.42 trillion from June’s record $1.50 trillion, but remained 38.6% above its year-earlier level. The NAAIM Exposure Index tracks the average U.S. equity exposure reported by participating active managers. An August 28 report placed the index at its highest level in two years, slightly above a fully invested position. Together, margin debt and the NAAIM index point to aggressive equity positioning.
TREASURY UPDATE
The Congressional Budget Office (CBO) estimates that the federal deficit totaled $1.8 trillion during the first 10 months of fiscal 2026. After adjusting for payment timing, the deficit was $1.7 trillion, $71 billion more than a year earlier. CBO now projects a $2.1 trillion deficit for fiscal 2026, $200 billion higher than its February projection. Net interest outlays rose 14% from a year earlier.
On August 19, the Treasury announced that it will at least double the size of buyback operations in longer-dated treasuries beginning September 9. Below is the full press release.
The U.S. Department of the Treasury is increasing, by at least double, the size of liquidity support buyback operations for longer-dated nominal coupon securities (the 10-year to 20-year sector and the 20-year to 30-year sector). The current maximum size of $2 billion per operation will be at least $4 billion per operation.
This change is effective September 9, 2026 and will be in effect for the remainder of this refunding quarter (through November 4, 2026). Treasury will provide more information about future buyback sizes at the next Quarterly Refunding, scheduled for November 4, 2026.
This increase in buyback operation sizes reflects Treasury’s desire to provide greater liquidity support in longer-dated nominal sectors where there is consistent strong sponsorship from market participants, as evidenced by the significant volume of high-quality offers Treasury routinely receives in longer-dated buyback operations.
An updated tentative Treasury buyback schedule will be released at a later date.
These long-term debt purchases will be made by the Treasury, not the Federal Reserve, and do not constitute quantitative easing. They will not increase the Fed’s balance sheet. The Treasury will finance the purchases through its overall borrowing program, and the securities will be retired at settlement. Treasury Secretary Bessent says the program is intended to support liquidity in off-the-run securities. In our view, larger buybacks may place some downward pressure on longer-term yields.
EMPLOYMENT UPDATE
The July Employment Report showed little change in the labor market, with a small decline in payrolls and downward revisions to the prior two months. Total nonfarm payroll employment declined 23,000 in July, and payroll gains averaged 20,000 during the three months ending in July. The unemployment rate remained largely unchanged at 4.1%, while the labor force participation rate edged down to 61.4%. Revisions to the previous two months’ jobs reports were negative. The May estimate was revised down by 66,000. The June estimate was revised down by 37,000. Together, the revisions reduced reported job growth by 103,000.
Average hourly earnings rose 2 cents in July and were 3.2% higher than a year earlier. That was slightly below the 3.4% increase in the Consumer Price Index (CPI). Initial jobless claims totaled 203,000 in the week ended August 22 and remained near historically low levels.
HOUSING MARKET UPDATE
The NAHB/Wells Fargo Housing Market Index (HMI) measures conditions in the single-family housing market. The index rose one point in August to 35 but remains well below the 50 threshold that signals favorable sentiment among builders. August marked the sixteenth consecutive month in which the index was below 40, consistent with a soft single-family housing market.
The latest HMI survey showed that 35% of builders cut prices in August. That was down from 37% in July and unchanged from June. At least 30% of builders have cut prices for 16 straight months. The average price reduction remained 6%. The use of sales incentives was unchanged at 63%.
The current sales conditions index rose two points to 39. The sales expectations index remained at 43, while the buyer traffic index stayed at 23. NAHB said that economic uncertainty, high mortgage rates, and rising construction costs continue to weigh on builder sentiment. Regional HMI readings are three-month moving averages. The Northeast fell one point to 44. The Midwest remained at 45. The South fell two points to 31. The West remained at 27.
The Census Bureau reported that total housing starts declined to a 1.239 million annualized rate in July, 12.4% below the revised June estimate and 13.5% below the July 2025 pace. Single-family starts slipped to 808,000, while starts in buildings with five or more units fell to an annual rate of 421,000. Building permits, a leading indicator of future construction activity, were 3.1% higher than a year ago. Total permits rose 5.0% from June to a 1.443 million annual rate, with single-family permits up 2.5% to 894,000.
New home sales declined in July. Sales of new single-family homes fell 10.5% month-over-month to a 607,000 annual rate, 6.3% below the year-ago pace. The June sales rate was revised up to 678,000. New home inventory remains elevated at 488,000 homes for sale, representing 9.6 months of supply, above the 4 to 6 months generally considered healthy.
INFLATION UPDATE
The headline personal consumption expenditures (PCE) price index increased 3.7% over the 12 months ending in July, unchanged from June. Core PCE inflation, which excludes the volatile food and energy components, rose 3.3% year-over-year. Headline and core PCE each increased 0.2% month-over-month in July.
The consumer price index (CPI) decelerated in July to 3.4% year-over-year. Core CPI, which excludes the volatile food and energy components, decelerated to 2.5% year-over-year. The 0.1% month-over-month increase in headline CPI was driven primarily by shelter, which accounted for roughly two-thirds of the increase. The energy index declined 1.5% in July. The Dallas Fed’s trimmed-mean PCE increased 2.3% year-over-year in July, unchanged from June. The Cleveland Fed’s trimmed-mean CPI increased 2.6% year-over-year in July, also unchanged from June.
Headline PCE:
+0.2% month-over-month seasonally adjusted
+3.7% year-over-year
Core PCE: (excludes food and energy)
+0.2% month-over-month seasonally adjusted
+3.3% year-over-year
Subscriber Note: We recently added an “Economic Dashboard” to our website, which tracks the key economic indicators we regularly monitor. You can access it anytime here: https://econ.brinkeradvisor.com/
FEDERAL RESERVE UPDATE
The Kansas City Fed hosted its annual Jackson Hole symposium from August 27 through August 29. Fed Chair Kevin Warsh delivered the keynote remarks on August 28. In his monetary policy discussion, he focused on price stability and forward guidance.
Chair Warsh described the Fed’s 2% PCE inflation objective as a firm target. He said the Fed’s primary focus should be on prices. He also said the two sides of the dual mandate are not an either/or choice. In his own words:
There is one signal nobody can miss: The responsibility for 65 months of sustained, elevated inflation sits squarely with the central bank. And that is where it belongs.
Here is my standard: We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do. That’s our job . . . our mandate . . . and our charge to keep.
Chair Warsh also said forward guidance has overstayed its welcome in normal times. He argued that overcommitting to future decisions can lead markets, businesses, and households astray. He concluded: “I stand here today committed to a discipline, not to a decision.” You can watch Chair Warsh’s remarks below or read the speech here.
The next FOMC meeting is scheduled for September 15-16 and will include an updated Summary of Economic Projections (SEP). At the end of August, CME FedWatch probabilities show a 66% chance of a quarter-point rate hike at the September meeting and a 34% chance of no change, with zero probability assigned to a rate cut.
MONEY SUPPLY
MODEL PORTFOLIOS UPDATE
Below is the monthly update of the Marketimer and Brinker Fixed Income Advisor Model Portfolios through August 31, 2026.
