Hello, I’m JP Powers, Chief Investment Officer for RWA Wealth Partners. Thank you for joining me for this month’s market update.

After a strong rally from late July through mid-August, the S&P 500 has given back some ground over the past week. To understand why, let’s look at what drove the rally in the first place, because the same forces are now working in reverse.

So, let’s take a closer look.

You can see here the index bottomed near 7300 on July 29, then surged almost 7% to an all-time high of 7800 just two weeks later on August 13.

Two things really drove that move. First was a weaker than expected July jobs report that took a Fed rate hike off the table, at least for September. Then came some better news on inflation, as the July CPI report was a bit better than feared at a still elevated 3.4%.

Combined with June, these were the first back-to-back soft inflation prints since the Fed’s divided decision to hold rates steady under new chair Kevin Warsh. Markets read that combination as a bit of a Goldilocks scenario, with earnings growth holding up, inflation somewhat cooling, and the Fed on pause.

Taken altogether, it helped the S&P hit 7800 for the first time ever. Since August 13, though, that narrative has started to crack, and a lot of that has to do with the bond market, particularly longer-dated bonds. The 30-year Treasury yield hit 5.32% on August 17, its highest level since 2007. When long-end yields move to those levels, it often creates a direct headwind for equities, especially the high-growth, high-valuation names that have led this market. At the same time yields were spiking, semiconductors and AI hyperscalers sold off sharply from the peak, with the pressure spreading into Asian markets as well.

That leads us into our two main topics this month, a closer look at spending from those hyperscalers, and a look at what’s happening in the bond markets and what the Treasury and potentially the Fed are trying to do about it.

One of the most important dynamics in markets right now is what the world’s largest technology companies are doing with their cash. The short answer is that they’re spending at an historic pace.

When we look at the five biggest AI infrastructure players shown here, their combined cash balances actually grew over the past two years, from roughly $385 billion to nearly $600 billion.

So, at first glance, it looks like business as usual.

But dig one layer deeper, and a different picture emerges when we look at free cash flows.

Free cash flow is the cash a business generates after paying for its operations and capital investments. This is the real scorecard for most businesses. And here, the AI buildout is leaving a clear mark.

In 2025, this group spent $428 billion on CapEx [capital expenditures] combined. That’s more than they generated in free cash flow. To put that in context, during the cloud buildout of 2015 to 2018, CapEx as a share of free cash flow peaked at around 50 cents on every dollar earned. Today, that ratio has risen above 100%, roughly 2.7 times the cloud-era peak.

So how are cash balances still rising if spending exceeds free cash flow? Well, there are a few reasons.

The first is that operating cash flows before CapEx remain very strong, as these are all healthy businesses performing well.

Second, these companies have been tapping both debt and equity markets to fund the buildout, effectively borrowing to invest rather than drawing down their reserves.

It’s worth noting the divergence within the group, but the common theme is the same. All of these companies are investing aggressively ahead of proven AI monetization. The cloud buildout of a decade ago ultimately generated enormous returns for these platforms, like AWS, Azure, and Google Cloud.

Investors are now asking whether AI can follow a similar path. Given the scale and speed of this spending cycle, the payoff will need to be extraordinary to justify these investments. Whether that bet pays off might define the investment landscape for the next decade.

Turning now to the bond markets, on Wednesday [Aug. 19, 2026], Treasury Secretary Scott Bessent announced a significant expansion of the Treasury’s long end bond buyback program, doubling the per-operation cap to at least $4 billion in what markets initially read as a positive attempt to put a cap on long-end bond yields.

In simple terms, the Treasury is trying to bring down long-term interest rates. By issuing short-term T-bills and buying long-dated bonds, Treasury will shorten the weighted-average maturity of U.S. debt to try to ease pressure on long-term interest rates. It’s similar to actions taken by the Federal Reserve back in 2011 in what was known as Operation Twist at the time.

There are a couple of differences now versus 2011 to point out, though.

Back then, we were in a very different macro environment. It was a period where core inflation was running right around the Fed’s 2% target and unemployment was still at 9%. So this measure was meant to stimulate the economy by bringing down long-end yields to make borrowing and spending more affordable. Today, though, inflation remains above target, employment is near full, and deficits are substantially larger.

Another key difference was the Fed has no limits on its balance sheet, and so at the time they could come out with an unlimited program to really boost markets. The Treasury, of course, does have limits, and so while Secretary Bessent didn’t put a cap on the overall operation, the expected incremental buying is about $28 billion total. That’s a far cry from the $400 billion we saw from the Fed back in 2011 over a 15-month period.

So, while this move from Treasury shares the same logic as Operation Twist, it’s likely not large enough to have the same impact. That may be why the bond market shrugged off the news and we’re back to roughly the same levels as before the announcement today.

The market is saying the buyback may address a symptom right now, but not the underlying cause. That underlying cause is a structural fiscal picture that is increasingly difficult to ignore. The U.S. debt load has crossed $40 trillion. The deficit remains wide, and the term premium that investors demand to hold long-duration U.S. debt is moving higher. This buyback program cannot change that path.

And with the Fed reluctant to act to address an above-target inflation environment, there’s no obvious near-term catalyst to bring long-end yields back down in a sustainable way. We’re likely going to have to see other contributing factors like real fiscal restraint, more progress on inflation, or larger interventions from Treasury or the Fed to bring these long bond yields down.

So, while we’ve highlighted some shakiness this month as investors are taking a breather after such a strong July, I want to be clear that the bull case has not disappeared. Q2 equity earnings beat expectations by a historically wide margin, and we expect to see overall earnings for the S&P up well over 20% this year.

The fundamental story around record earnings, AI-driven productivity, and a resilient consumer has not changed. What has changed is the price of money.

Higher long-term interest rates create a higher hurdle for equity valuations, and that’s the tension investors are working through right now.

As we move into the fall, we’ll be watching whether earnings growth can continue to offset that pressure. Thank you for joining me for this month’s market update.

Please reach out to your advisor here at RWA Wealth Partners to see how these trends might impact your own portfolio. And we’ll see you next month.