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Higher bond yields and oil prices pressured equity markets last week. For the week, the S&P 500 Index was -1.4%, the Dow Jones Industrials -0.8%, and the NASDAQ -2.4%. The Health Care, Energy, and Materials sectors led the S&P 500 Index for the week, while the Utilities, Industrials, and Technology sectors lagged. The 10-year U.S. Treasury note yield was 4.734% at Friday’s close versus 4.688% the previous week.
Geopolitical concerns are back on the table as trade talks broke off between the U.S. and Canada on Friday, prompting both sides to enact additional tariffs on some goods not currently covered under the USMCA. The U.S. is also dialing up economic pressure on Iran with new sanctions expected this week.
On the domestic agenda, the Federal Reserve holds its Jackson Hole Economic Policy Symposium later this week. Fed Chairman Kevin Warsh is scheduled to speak on Friday morning. CME Fed funds futures currently show a single 0.25% increase at the September Federal Open Market Committee meeting.
This is the last significant week of earnings reports for the quarter with 24 companies in the S&P 500 Index scheduled to report. More than 93% of S&P 500 companies have now reported. Second quarter earnings are expected to grow by 50.9%, with revenue growth of 15.4%. Full-year 2026 earnings are expected to grow by 32.6%, with revenue growth of 11.7%.
In our Dissecting Headlines section, we look at the increase in the national debt to $40 trillion.
Financial Market Update
Dissecting Headlines: National Debt
The U.S. national debt crossed $40 trillion this past week. Debt service is now approximately $1 trillion per year. The growing debt and resulting supply of Treasury securities are contributing factors to upward pressure on interest rates at the longer end of the yield curve. The U.S. 30-year Treasury bond ended the week at a 5.272% yield, its highest level since 2007.
Treasury Secretary Scott Bessent announced an expansion of buybacks of longer-dated Treasury securities designed to improve market liquidity and alleviate some pressure on long-term yields. The Treasury is issuing more shorter-term bills to meet financing needs. Greater reliance on shorter-term borrowing may reduce current financing costs but creates additional refinancing risk as that debt must be rolled over more frequently.
Looking at who owns U.S. government debt, approximately 46.0% is held by U.S. investors and institutions, 23.2% by foreign investors and governments, 19.4% by intragovernmental accounts, and 11.3% by the Federal Reserve. Interestingly, foreign ownership has not changed dramatically as a percentage of the total. In 2000, foreign investors and governments owned approximately $1.2 trillion, or 21.0% of U.S. government debt, compared with 23.2% today.
Reducing the debt burden ultimately requires some combination of faster economic growth, lower government spending, higher tax revenues, and lower interest costs. Stronger economic growth can increase tax revenues and reduce the debt burden relative to the size of the economy, but stabilizing the debt will require narrowing the gap between what the federal government spends and what it collects.
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