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The Federal Reserve held interest rates steady last week and equities rose after price declines the previous two weeks. For the week, the S&P 500 Index was +1.1%, the Dow Jones Industrials +1.0%, and the NASDAQ +0.5%. The Consumer Discretionary, Communication Services, and Consumer Staples sectors led the S&P 500 Index for the week, while the Utilities, Real Estate, and Materials lagged. The 10-year U.S. Treasury note yield was 4.712% at Friday’s close versus 4.683% the previous week.
The Federal Reserve held the Fed funds rate at its 3.50% to 3.75% range at its meeting last week. The vote was 9 to 3 with the three dissents wanting to raise the Fed funds rate by 0.25%. CME Fed funds futures are currently forecasting a single 0.25% increase at the September Federal Open Market Committee (FOMC) meeting. This is inline with the June FOMC meeting projections for a single increase for the year.
The advance report on second quarter Gross Domestic Product (GDP) showed economic growth of 1.5% for the quarter, a deceleration from 2.1% in the first quarter. Consumer spending and business investment remained strong during the quarter but higher imports versus exports and lower federal government spending restrained overall growth.
We are past the halfway point of the second quarter earnings reporting season with 61% of companies having reported results. This week sees 136 companies in the S&P 500 Index scheduled to report earnings. Second quarter earnings are expected to grow by 47.7% and quarterly revenue growth is expected at 14.1%. Full-year 2026 earnings are expected to grow by 29.1% with revenue growth of 11.1%.
In our Dissecting Headlines section, we look at the hedge fund unwind that contributed to recent market volatility.
Financial Market Update
Dissecting Headlines: Hedge Fund Hiccup
Movement of stock prices and market indices is a sum of the actions of investment decisions by investors deploying capital. There have been several instances when a single institutional investor has caused a volatility blip due the need to correct some extreme positioning. Sometimes these can cause major disruptions such as the crisis at Long Term Capital in 1998, while others cause a small disruption before other market participants absorb the holdings.
Last week, the Situational Awareness fund needed to unwind levered holdings in many AI infrastructure related technology stocks and wound up selling its portfolio at a steep discount to Citadel, a major investment fund. The Situational Awareness fund had seen major gains in the first half of 2026 but suffered major losses as AI and semiconductor stocks saw declines in July. The combination of the leverage (borrowing money to buy more stocks) and falling stock values forced the fund to liquidate its public holdings.
It is often difficult to determine whether market volatility is being driven by headlines, economic or corporate fundamentals, or the actions of investors themselves. In this instance, the volatility was amplified by an overleveraged investor being forced to unwind concentrated positions after the market temporarily turned against the fund’s investment thesis.
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Want a printable version of this report? Click here: NovaPoint Weekly August 3, 2026
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