Article published at 9:10 a.m. CT
JJ Kinahan is Senior Vice President, Head of Retail Expansion and Alternative Investment Products at Cboe Global Markets, Inc. (Cboe).
Key Takeaways:
- Hopes of Middle East peace talks boost indices
- AstraZeneca reportedly in talks to merge with Bristol-Myers
- Week is jam-packed with earnings and economic reports
Trading in August kicked off with the markets primarily bouncing to the upside in the early going as crude oil prices tumbled amid hopes of a de-escalation of the Middle East war. That was a good sign after a rough month of trading throughout July.
The Dow Jones Industrial Average was solidly higher, rising 1.32%, and the S&P 500 Index advanced by nearly 1.0%. Memory stocks are weighing on the Nasdaq Composite, which bobbled on the flat line early before turning notably higher, up 1.30%. Shares of Micron, Sandisk and Seagate were all lower by nearly 4% each.
WTI Crude Oil prices were falling marginally above $79 a barrel, off 6,3%, in early trading as hopes that the U.S. and Iran would hold potential peace talks later today to open shipping through the Strait of Hormuz.
Among early movers, shares of Tyson Foods were dropping 4.5% after the meat processor’s fiscal third-quarter earnings met Wall Street’s expectations but sales were notably off. The culprit is a 12% jump in meat prices, which the company blamed on a 16% pullback on volume that led to a 3.9% drop in sales. Tyson also lowered its guidance on profits and sales in the fourth quarter.
Shares of AstraZeneca and Bristol-Myers Squibb were moving in opposite directions after the Financial Times reported ongoing merger talks to create a pharma group with a combined market capitalization of about $400 billion, the largest deal ever and the fourth largest pharma group in the world. AstraZeneca shares tumbled 7.2% while Bristol-Myers climbed nearly 3%.
We’ve got another big week of earnings ahead, mostly led by technology mega-caps including Advanced Micro Devices, Palantir, Sandisk, Novo Nordisk and Western Digital, as well as industrials such as Caterpillar and Rockwell Automations. Palantir has an expected move of 11% with Monday earnings as buyers loaded up last week in the 130 calls.
Others on the calendar include McDonald’s, Walt Disney and Eli Lilly. SpaceX will also open the books on its first quarterly report tomorrow after the close. A bevy of economic reports are on the agenda as well, concluding Friday with nonfarm payrolls and unemployment numbers.
The chip stocks will be the ones to watch after last month’s drubbing. The Philadelphia Stock Exchange Semiconductor Index (SOX), which tracks the top global 30 chipmakers, gave back 20% by July’s end Friday — its biggest loss since the Great Financial Crisis in 2008. The SOX was inching modestly higher in early trading. On nearly half the trading days, the SOX index swayed in either direction by at least 4%, according to Bloomberg. What’s more, all 22 sessions saw intraday price movement of at least 2%, which was last tracked at the start of the new decade.
Not surprisingly, investor worries over pricey artificial intelligence investments prompted much of the instability. Profit taking and, conversely, buying on the dip, also played a hand. Last week’s second-quarter earnings results from Microsoft and Amazon eased many of those worries. These events usually end with more volatility so we will watch how it all shakes out this week.
In all, Bloomberg calculated the chip stock selloff at $2.2 billion. Taiwan Semiconductor Manufacturing Co., Micron and Intel were the top three suffering threefold multi-billion setbacks. Tough as that looks, let’s remember that on a year-over-year basis, these three are still well ahead – TSMC by 69%, Micron by 664% and Intel by 363%.
Treasury bonds, particularly the 30-year and the 10-year, also will be worth watching this week. Bond prices tumbled after the Federal Reserve’s decision to keep interest rates intact at 3.50% to 3.75%, which pushed yields higher. The 30-year was hit hardest, peaking at 5.27% Friday – its highest since the GFC onset in 2007 – and is retreating slightly to 5.21% in early trading. The 10-year landed at 4.75% Friday and is off to 4.68% today.
Happy trading!
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