Market Declines Amid Rising Oil Prices and Treasury Yields

This week's market performance was marred by declines in both the S&P 500 and Nasdaq Composite, adding to their overall downward trend over the past month.

The Pro Portfolio managed to outperform these benchmarks on a relative basis, recovering some of its year-to-date lead against the S&P 500.

Two key drivers stood out as contributing to this week's market machinations: the climb in oil prices and Treasury yields. The increasingly pessimistic tone about the Iran war helped fuel these increases, with concerns over inflation, oil prices, the cost of the war, and U.S debt all coming into play.

However, recent reporting suggests that Vice President JD Vance and Secretary of State Marco Rubio have privately warned President Trump that Iran could continue resisting for the remainder of his presidency, potentially taking the conflict beyond January 2029. Former Defense Secretary Leon Panetta also shared his view that the war could last at least another six months.

The war's ongoing nature has already led to disruptions in oil flows from the Middle East and supply chains, with prices continuing to climb. The August Producer Price Index report and Consumer Price Index report also showed signs of inflationary pressure, pushing market expectations for a Fed rate hike next week above 86%.

The Pro Portfolio will continue to watch developments closely, particularly with regards to the 10-year Treasury yield, which could potentially break decisively above 5%. If this happens and remains sustained, it could call into question the market's valuation, specifically for the S&P 500, which currently trades at around 21x consensus 2026 EPS estimates.

In light of these developments, the Pro Portfolio will maintain a cautious posture near-term and may make further adjustments to its cash position as we go into the second half of September. Historically speaking, this period has been one of weakness for the S&P 500.