Market Update - August 2026
Elevate Capital Management – Market Update
Markets are entering what we believe could be a more complicated period than the headline equity indices might suggest. Corporate earnings remain generally healthy, AI-related capital spending continues to be an important economic driver, and there are still attractive opportunities beneath the surface. At the same time, the bond market is sending a message that investors should not ignore. The biggest macro issue we are watching today is not necessarily the Federal Reserve. It is the long end of the Treasury curve.
The Bond Market Is Becoming the Story
Treasury Secretary Scott Bessent has recently attempted to relieve pressure on longer-term interest rates by increasing Treasury's buybacks of longer-dated bonds. Beginning in September, Treasury plans to at least double individual liquidity-support buybacks in the 10–20 year and 20–30-year portions of the curve from $2 billion to $4 billion.
The market's reaction has been telling: Long-term yields initially moved lower following the announcement, but much of that move quickly reversed. The 30-year Treasury recently traded above 5.3% before settling around the 5.2% area, while the year Treasury is also around 5.2%. In other words, the buyback is helping liquidity, but so far it is not solving the problem.
The Federal Reserve has considerable control over the front end of the yield curve through the federal-funds rate. If the Fed cuts overnight rates, two-year yields will normally respond because they largely reflect expectations for monetary policy over the next several years. The 20 and 30-year portions of the Treasury market operate differently.
Neither the Fed nor Treasury can simply dictate where those yields trade indefinitely. The market ultimately determines the return required to lend money to the U.S. government for several decades. Treasury can change issuance patterns, repurchase older bonds and improve liquidity. The Fed can influence long rates through quantitative easing or expectations for future monetary policy. But neither eliminates the underlying economic forces determining the clearing price for long-duration capital.
Today those forces include:
• inflation expectations;
• real economic growth;
• the size and trajectory of federal deficits;
• the roughly $40 trillion national debt;
• Treasury issuance required to finance that debt;
• foreign demand for U.S. Treasuries;
• the term premium investors require for holding 20 or 30-year bonds;
• energy prices and geopolitical risk;
• quantitative tightening;
• and increasingly, competition for capital from enormous private-sector borrowing requirements, including AI infrastructure and data-center construction.
The U.S. national debt has now crossed $40 trillion, while annual interest expense has itself become one of the largest components of federal spending. That is ultimately why a $4 billion Treasury buyback can move markets temporarily without fundamentally changing the equation. The bond market is many orders of magnitude larger, and investors are asking a simple question: What return do we need to be compensated for lending money for 20 or 30 years when inflation remains elevated and federal borrowing continues to increase?
Why the Long End Matters So Much?
This may ultimately be one of the most important variables for financial markets over the next several years. Thirty-year mortgage rates, commercial real-estate financing, corporate borrowing costs, infrastructure financing and many other long-duration assets are priced much more closely to intermediate and long Treasury yields than to the overnight Fed Funds rate. For example, the 20-year Treasury is currently around 5.2%, while national average 30-year mortgage rate is approximately 6.65%. This is why it is entirely possible for the Fed eventually to reduce short-term rates while mortgage rates remain stubbornly high.
A Fed cut does not automatically mean a 5% mortgage.
If investors continue demanding a substantial term premium on longer-dated Treasury securities, mortgage rates can remain elevated even as overnight rates decline. And the consequences extend well beyond housing. The long Treasury yield effectively establishes a foundational risk-free discount rate for the entire financial system. If an investor can earn approximately 5% or more owning a 20 or 30-year U.S. government bond, the required return for owning equities must also rise. That means investors become less willing to pay very high multiples for profits that may not arrive for many years.
Impact on equity valuations
Mathematically, a higher discount rate reduces the present value of future cash flows. This is particularly important for companies trading at elevated valuations. Businesses producing substantial cash flow today are considerably less sensitive to changes in discount rates than businesses whose valuations depend heavily on earnings many years into the future. That dynamic is one reason we continue to emphasize valuation, cash-flow generation and security selection, even though we remain very bullish on the long-term AI investment cycle.
Inflation, Oil and the Long Bond: Energy remains another major variable.
Inflation has moderated from its recent peak, but it remains above where policymakers would ideally like it to be. Recent estimates put headline inflation around 3.4%, leaving the Federal Reserve with considerably less flexibility than it would have in a traditional slowdown. Oil therefore matters enormously. Both crude-oil and refined-product inventories continue to tighten, and the shortage is becoming more acute over time. Inventories both at sea and on land have declined sharply in recent weeks, while emergency reserve releases have absorbed part of the shock. Recent estimates show roughly 300 million barrels of inventories have been drawn since mid-July.
From our own top-down work, we estimate that approximately six to eight weeks of oil inventory remains on the water. That does not automatically mean oil prices must move dramatically higher, but it reduces the margin for error. A geopolitical disruption, refinery outage, continued pressure through the Strait of Hormuz or stronger-than-expected global demand could quickly change the balance.
The problem for bonds is straightforward: higher oil leads to higher inflation expectations, which leads to a higher long-term treasury yields, higher mortgages and corporate borrowing costs and lower equity valuation multiples. Oil therefore has implications far beyond the energy sector.
September and Market Seasonality
We are also entering a seasonally more difficult period. Historically, September has been the worst-performing month of the year for U.S. equities. Long-term studies have shown average September S&P 500 returns to be negative, with several estimates around a 1% decline. Seasonality alone is never a reason to sell stocks. There are plenty of Septembers when markets rise but positioning matters.
We are entering this particular September with long-term Treasury yields near multi-decade highs, elevated energy prices, persistent geopolitical risk, substantial government financing requirements and portions of the equity market trading at demanding valuations. We therefore would not be surprised to see volatility increase. Importantly, volatility and investment risk are not the same thing. Volatility frequently creates exactly the opportunities that long-term investors need.
Elevate Capital — 2026 Portfolio Update
Against that backdrop, we are extremely pleased with how the Elevate Capital strategies have performed.
According to our most recent Portfolio Performance Report through July 21, 2026, all 20 reported ECM strategies were positive for the year. YTD returns ranged from 8.61% to 50.70%, with the median strategy returning approximately 23.2%.
The one-year numbers were similarly strong, ranging from 7.62% to 94.13%, with a median return of approximately 42.4%. Importantly, the performance report states that these returns are net of fees and were generated without leverage. Individual client returns will naturally vary based on portfolio construction, mandate and timing. We are particularly encouraged because performance has not required us to abandon our investment discipline.
We continue to believe strongly in the structural investment themes we have discussed with clients for several years: artificial intelligence, semiconductor infrastructure, power generation, electrical infrastructure, data centers, cooling, networking, defense, aerospace, healthcare innovation and other areas benefiting from long-duration capital investment. At the same time, we have continued evolving the portfolio.
We have added greater emphasis on valuation, including companies where we believe the underlying business and long-term growth prospects are significantly better than what is currently reflected in the stock price. We continue looking for opportunities where strong companies have temporarily fallen out of favor with the market. That combination — structural growth combined with valuation discipline — is increasingly important in an environment where the risk-free rate is above 5%.
Looking Forward: There are real risks in the market today.
We are monitoring the long end of the Treasury curve particularly closely because we believe it is becoming one of the most important signals for equities, housing and the broader economy. We are also watching inflation, oil inventories, fiscal deficits, Treasury issuance and the enormous amount of capital being raised to finance the AI infrastructure buildout but we remain constructive. The U.S. economy continues to produce extraordinary businesses, technology continues to advance at an exceptional pace, and the AI infrastructure cycle remains one of the largest capital-investment opportunities we have encountered during our careers.
Markets will not move in a straight line: There will be corrections and there will be periods where investors question the thesis. And there will inevitably be periods when some of the best companies we own decline substantially despite little or no deterioration in their underlying businesses. That is where we believe our experience becomes particularly valuable.
Our job is not to predict every 5% move in the market. It is to understand where capital is flowing, identify structural changes before they become obvious, distinguish temporary volatility from permanent impairment, and continuously evaluate whether the price we are paying for an investment adequately compensates us for the risks we are taking.
We have navigated many different market environments over our careers, and we believe the combination of our research process, active portfolio management and willingness to look beyond traditional benchmarks gives us an advantage when markets become more complicated. We remain optimistic about the opportunities ahead and, as always, deeply appreciative of the confidence our clients place in Elevate Capital.
Elevate Capital Management
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