Fed Holds, Markets Approve

Scott Poore, AIF^®, AWMA^®, APMA^®

August 03, 2026

After digesting the Fed holding rates steady, equity markets moved higher to end the week. Despite renewed U.S.-Iran military action over the week, oil decreased more than 4% last week.¹ The Fed left interest rates unchanged at last week's meeting - a move markets ultimately cheered. Fed Chairman Warsh's comments following the FOMC meeting conclusion on Wednesday were taken as largely dovish. According to financial columnist Mike Zaccardi, Warsh alluded to other ways to affect inflation outside of changing interest rates.² Inflation is following a similar pattern this year as it did in 2021-2022 with regard to the 5-year Inflation Breakeven Rate. The breakeven rate is calculated by subtracting the interest rate on 5-year Treasury bonds from the real rate on 5-year TIPs. Since it peaked in May, the 5-year Inflation Breakeven Rate has plummeted and the Consumer Price Index along with it. It has been a difficult year for investors and professional money managers with the risk-on/risk-off turbulence that seem to shift markets in a different direction, leading to a volatile trading environment in 2026. The different styles of equity investing - growth and value - have been at significant odds at different times this year.³ Growth and momentum stocks took off to start the year, but the onset of the U.S.-Iran war sent markets into risk-off mode helping value stocks to win the first quarter. With a memorandum of understanding in place on the war front, risk assets took off again helping growth stocks to out-pace value stocks in the 2nd quarter. So far, in the 3rd quarter, value stocks are more than doubling the return of growth stocks. During market environments like the one we're in currently, investors may benefit more by maintaining a long-term investing approach instead of worrying about a single quarter or two of performance. Second quarter GDP disappointed expectations coming in at +1.5% versus +2.1%.⁴ However, it wasn't the consumer that slowed down. The likely culprit were tariffs and the war as businesses drew down inventories and tried to get goods into the country before a new wave of expected tariffs.⁵ So, while consumer spending was up +3.2%, Private Inventories and Net Exports were down.⁵ If we look at the weekly measure of economic growth, as represented by the Lewis-Mertens-Stock Index, the economy appears to be on a growth trend unlike past recessionary trends.⁶ Financial planning and a long-term investment strategy could prove a better approach than responding too quickly to changes in market sentiment that may seem to shift as the wind blows.

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Disclosures

The information contained herein is for informational purposes only and is developed from sources believed to be providing accurate information. The opinions expressed are those of the author, are for general information, and should not be considered a solicitation for the purchase or sale of any security. The decision to review or consider the purchase or sell of any security should not be undertaken without consideration of your personal financial information, investment objectives and risk tolerance with your financial professional.

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