One causal chain for US equities in the second half of 2026
The index is at a high, but what was holding it up has lost its footing. Seven pages build a chain; five more show two places on that chain where you can act.
Macro · eight steps · two stocks · about 20 minutes
Disclaimer · This material is for personal research and educational discussion only. It is compiled from public information and does not constitute investment advice, an offer, or a recommendation, nor a basis for buying or selling any security. The presenter may hold positions in the securities mentioned. Investing involves risk; make your own judgement and bear the consequences of your own decisions. Data as of 26 August 2026.
Same market. Why did tech crack first?
Same market, same period, and the two drawdowns differ by almost four times. This is not a broad sell-off; it is money changing legs. The next seven pages answer why.
Source: IBKR weekly closes to 2026-08-26
One chain, eight steps
Each step is explained by the one before it; the order is the causation. The three orange steps are the key nodes.
Hormuz blockaded
5.5M bpd of capacity offline
Core only 2.5%
but cuts are off the table
three votes to hike
61bp above the policy rate
fair multiple 20× → 17.5×
SPY −1.1%
This inflation is imported, not overheated
Headline CPI is pushed to 3.4% by energy while core is only 2.5%. The gap between them is food and energy.
Rate hikes can make Americans buy one fewer fridge. They cannot make the Middle East pump one more barrel.
→ food + energy ≈ +6.8%
Approximation, backed out from published weights.
Sources: July 2026 FOMC statement · BLS July 2026 CPI report
Not "the cutting guidance is gone". Hikes are on the table.
FOMC, 28–29 July: rates unchanged, but three members voted to hike.
July FOMC minutes
The market's next expected cut is now in early 2028.
| Rate | Level | Relative |
|---|---|---|
| Effective fed funds | 3.63% | — |
| 2-year Treasury | 4.24% | 61bp above |
| 10-year Treasury | 4.70% | term spread +46bp |
The 2-year is roughly the average expected policy rate over the next two years. It is above today's rate, so the bond market's priced next move is a hike. Bonds have already caught up.
Sources: July 2026 FOMC statement and minutes · Federal Reserve H.15, 2026-08-24
The discount rate: the ruler every stock is measured with has changed
The Fed didn't hike, yet the long end kept rising, because the cut was removed and the market now demands more term premium.
| Discount rate | Fair multiple | |
|---|---|---|
| Start of year | 9.0% | 20.0× |
| Now | 9.7% | 17.5× |
| Change | +0.7pp | −12.3% |
Assumes perpetual earnings growth of 4%; multiple = 1 ÷ (discount rate − growth).
Not a dollar less in profit, and fair value already fell 12%.
Federal Reserve H.15 puts the 10-year at 4.70% on 8/24; that figure is used for the valuation arithmetic.
Duration: the later the cash arrives, the harder rates hurt it
This is the step that turns an abstract rate into gains and losses you can see in your account.
| Cash flow in year | Rate 9.0% | Rate 9.7% | Change |
|---|---|---|---|
| 1 | 0.917 | 0.912 | −0.6% |
| 5 | 0.650 | 0.629 | −3.2% |
| 10 | 0.422 | 0.396 | −6.3% |
| 20 | 0.178 | 0.157 | −12.2% |
| 30 | 0.075 | 0.062 | −17.6% |
Present value of $1 = 1 ÷ (1 + r)^n. Standard discounting arithmetic, my own calculation.
No index targets. One question: does the chain break, stall, or keep pushing?
| Scenario | How the chain moves | Probability | Market |
|---|---|---|---|
| A · breaks at step 2 | Conflict eases, energy falls → headline CPI converges on core → cuts back on the table | 45% | Discount rate falls, growth rebounds |
| B · stalls (base case) | Inflation stuck around 3%, Fed on hold, 10-year between 4.5 and 5.0 | 40% | Index sideways, violent rotation underneath |
| C · keeps pushing | Another energy shock → an actual hike | 15% | Multiples compress 10–15% |
The stocks aren't a new topic. They are two places on this chain where you can act.
So the real question becomes: if you have to carry this duration, whose odds are best? My answer is GOOGL, because it is the only one that can show evidence of a return.
It genuinely fails a test I set myself
Alphabet is issuing stock to fund a ten-year infrastructure bet. Of my three criteria, it clearly fails the second.
I pick it anyway; the reason is on the next page. These come first because you can look them up. Sources: Alphabet Q2 2026 earnings and 10-Q (SEC) · June 2026 equity offering press release
But it is the only one with evidence of a return
Burning cash is not the problem. Burning it and producing nothing is.
TPUs are already being sold to external customers including Anthropic and Meta; revenue is recognised mostly from 2027.
Sources: Alphabet Q2 2026 earnings and call · valuation data from stockanalysis.com, 2026-08-26, same basis
This is not a bet on oil. It is position insurance.
If my macro call is wrong in the worse direction, I need something that is making money.
Sources: EOG Q2 2026 earnings and call · EIA Short-Term Energy Outlook, August 2026
Their value is not which one is better. It is that something makes money whichever scenario arrives.
| Scenario | GOOGL · step 8 | EOG · step 2 |
|---|---|---|
| A · conflict eases (45%) | Big gain | Loss |
| B · high-level stalemate (40%) | Earns the earnings | Small gain |
| C · an actual hike (15%) | Gets hit | Gain |
The right move is to change the structure, not to sell everything.
All data as of 26 August 2026, from the Federal Reserve, BLS, EIA, SEC filings and IBKR real-time quotes. Personal research, not investment advice. Investing involves risk; make your own decisions.