Market Movement
Last week, the S&P 500 fell 1.43%, closing at 7674 points. At the same time, it is up 12.11% YTD. Market consensus sets an average target price of 7899 for the end of 2026 (+2.9%). Long-term US 10-year rates rose 4 bps, trading at 4.73%, remaining elevated. The DXY depreciated 0.8%, trading at 98.8. The VIX rose and traded around 15, below the average of recent years. From these levels, we expect volatility to increase in the short term.
The market decline was driven by the Utilities (-3.6%), Industrials (-3.4%), and Technology (-3.2%) sectors. Meanwhile, growing tension between the US and Iran caused oil prices to close the week trading around USD 85 per barrel. Additionally, the publication of Q2 2026 earnings reports continues this week. Among the most notable will be Nvidia, Salesforce, and Crowdstrike.
Analysis & Outlook
Regarding the bond market, the spread of Investment Grade bonds over Treasuries widened. This trend is expected to continue in the short term. Therefore, it is better to position in interest rate instruments over credit.
In this scenario, the market has been readjusting the interest rate path expected from the FED for 2026. Thus, it expects a 25 bps hike in December, ending the year at 4%. This adjustment in expectations was reflected in the rise of long-term interest rates, while the stock market remains near all-time highs. Furthermore, the SPX valuation is at 18.9, below the 5-year average of 19x (P/E).
Consequently, with a reduced risk of an economic slowdown and potential recession, a context of greater uncertainty and interest rate volatility emerges. However, valuations remain reasonable, presenting a medium-term opportunity. Therefore, we recommend looking for quality sectors with solid balance sheets to navigate this environment. In this regard, we highlight sectors such as semiconductors, technology, banks, and industrials.
In the attached report, you will find some investment ideas for this environment.
