Markets Take A Breather As U.S.-Iran War Takes A New Turn

Scott Poore, AIF^®, AWMA^®, APMA^®

August 24, 2026

Most sectors were lower last week over worries on the Treasury buyback and tech valuations. The U.S. announced additional economic sanctions on Iran, pushing oil higher by more than 4% last week.¹ Treasury Secretary Bessent will hold a press conference on Monday to formally announce specifics of the plan.² In the meantime, traffic through the Strait of Hormuz increased over the weekend to levels not seen in more than a month.³ That being said, while the price of crude oil has stayed between $76 and $86/barrel over the past 40 days, the price of diesel crack spread - the difference between sulfur diesel and crude oil - has reached an all-time high.³ Last week the market seemed to respond poorly to the Treasury's announcement of a buyback of treasury bonds of at least $4 billion.⁴ Some interpreted the move as a "liquidity support" event. However, this is more likely a repeat of the 2011-2012 "Operation Twist" that involved the Fed purchasing long-term bonds by issuing short-term bonds.⁵ The end result 9 months after Operation Twist commenced, as evidenced in the graph above, was that the long-end of the Treasury Curve moved lower while the short end of the curve just slightly moved higher. If such a result could be accomplished in "Operation Twist 2.0," it could prove supportive of economic activity and give the Treasury room to reinvest a portion of its balance sheet that is maturing in lower interest rate treasuries. The concentration of the S&P 500 Index in just the top 10 names is something we have covered for the past few weeks. However, other patterns are starting to emerge that are also reminiscent of the Dot.com bubble. The correlation between U.S. stocks that are high-risk versus low-risk has reached a record low of -34%. The previous low of 7% was set prior to the peak of equities in 2000. Historically speaking, the correlation between high and low risk stocks has averaged approximately 80%, according to the graphic. If true, that would mean that there is a rotation happening away from high-risk toward low-risk stocks. On top of that, we are approaching mid-term election season where markets tend to get choppy, historically. The S&P 500 Index is positive so far for the month of August. When July is negative and August is positive heading into Mid-terms, September is down, while October and November are higher, on average.⁶ However, if August were to end negative, the returns over the next three months have been worse than when August is positive. When July and August are negative, September has averaged -5%, with a recovery in October and flat November, historically.⁷ In other words, investors could expect more volatility heading into year-end to go along with the volatility we've already experienced in 2026.

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