Stocks Post August Gains but US-Iran Strikes Drive Profit-Taking To End the Month: Aug. 31, 2026

Markets are declining on the final day of August as a resurgence in US-Iran strikes lift crude costs and interest rates, sparking profit-taking prior to the seasonally unfriendly September. The rise in oil paired with Fed Chair Warsh’s hawkish delivery last Friday in Jackson Hole has Wall Street expecting a hike at the central bank’s monetary policy decision in 16 days with a 66% degree of certainty. Furthermore, there’s a 50% chance that the committee will decide to raise a second time before year-end as persistently elevated fuel prices are supporting inflation that is well above target. The tighter financial conditions are punishing stocks, meanwhile, especially those within cyclically oriented areas, as the Dow Jones Industrial and Russell 2000 benchmarks underperform the Nasdaq 100 and S&P 500.  Energy and tech are the only sectors advancing of the 11 principal segments. In fixed income, the yield curve is climbing in bear-steepening motion led by the longer tenors, but the greenback is retreating slightly. Elsewhere cryptocurrencies, volatility protection instruments, prediction markets and commodities ex precious metals are catching bids in this risk-off session.

Wall Street Needs Weak Jobs Data Here

We will have a plethora of jobs data to comb through in the next few days, and the numbers could very well shape market sentiment in the seasonally unfriendly month of September. Wall Street needs weak statistics to unlock interest rate alleviation here, which has been the top risk in the past several weeks. Softer labor figures would justify a balanced approach at the Warsh Fed that would result in the committee taking the employment side of the institution’s dual mandate into consideration, effectively loosening financial conditions. Additionally, a second month in a row of declining payrolls would motivate heavy bond buying as slowdown angst gets priced more seriously onto the curve. Finally, lighter-than-expected reports from the government, ADP, and Challenger, paired with some geopolitical progress, would likely spark significant rebounds in markets, and could even rapidly drop yields by double digits.

International Roundup

China’s Manufacturing Contraction Slows

China’s manufacturing sector continued to decline this month but at a slower pace than during July with the National Bureau of Statistics’ Purchasing Managers Index climbing from 49.2 to 49.8. While the print exceeded the economist consensus estimate of 49.2, it remained shy of the contraction-expansion threshold of 50. Meanwhile, the services PMI stayed unchanged at 49, considerably underperforming the economist consensus estimate of 49.5. The broader composite PMI, which consists of both manufacturing and services gauges, climbed from 49.3 to 49.5.

On a positive note, production and new orders climbed to 50.4 and 50.6, respectively. Export orders were an additional tailwind. The 50.1 level was up from 49.6 in July. Broadly speaking, China has benefited from strong global demand for artificial intelligence semiconductors and climbing fossil fuel prices boosting the country’s exports of renewable energy technology. These trends contributed to production and new orders for the electronic machinery and equipment, computer communication devices category hitting 53. The services sector, nevertheless, struggled with the headwinds of contractions in wholesale, retail and capital markets. Employment and raw materials were also weak with scores below 50, but gate prices climbed. The country had experienced 41 months of deflation prior to March of this year when inflation returned.

Production Growth Slows in South Korea

South Korea’s All Industry Production index for July depicted output growing 3.1% year over year (y/y) and remaining unchanged on a month-over-month basis. Both metrics slowed from June’s 4.4% y/y and 2.4% m/m June ascents with manufacturing and services both weighing on results, according to the Ministry of Data and Statistics. The Industrial Production Index, for example, slowed from 6% and 6.7% y/y and m/m in June to 3.6% and 0.2%, respectively. Automobile manufacturing slipped following a sharp June increase. Factories were also hindered by partial strikes. Electronic manufacturing, conversely, remained strong with growth in semiconductors, printed circuit board and OLED screens with the buildout of AI centers sustaining demand. Services, furthermore, sank from 5.4% and 0.9% to 3.5% and -1.3%. Construction pulled the sectors results down despite services for industry, mining and manufacturing climbing y/y.

And Retail Sales Fall

Retail sales fell 2.4% m/m in July, a sharp reversal from June’s 2.7% climb. Passenger car sales were the primary driver of the poor showing. The category sank 11.1% following sales climbing aggressively in June as consumers rushed to complete purchases prior to the expiration of temporary reduction in consumption taxes. The strong June created a high base for July’s results. Durable goods also fell, a result of weak demand for home appliances and telecommunication devices.