Yields Drive the Market
Treasury yields set the direction for stocks, and the two are now moving together. The US 10-year yield hit above 4.81%, its highest since November 2023, which pressured equities. That followed a rise to 4.8% at the top the day before. Yields have since pulled back, leaving S&P 500 futures flat to slightly positive. Watch this reverse-correlation trade as earnings season continues: when yields rise, stocks fall, and when yields ease, stocks get room to climb.
The main force behind the rise in rates, beyond a broad global increase in yields, is crude oil. Oil traded above $90 a barrel in the morning, then fell over 1%, which eased some of the upward pressure on yields.
Oil and Geopolitics
Oil sits near the $90 level. Tensions started a couple of days ago with US strikes on sites in Iran, which picked up the prior afternoon and sent markets to the lows of the day. A stabilizing factor: an announcement due in Venezuela on partnerships between the US and the Venezuelan government and companies involved in oil extraction there, which could calm oil markets. The risk is a back-and-forth cycle - the US striking Iran, Iran hitting back. The key question ahead is whether growing economic pressure on Iran pushes it back to the negotiating table through mediators like Qatar and Pakistan.
Other pressures on stocks: rising geopolitical tension, higher oil prices denting growth expectations, rising inflation pressure, and growing odds of a September rate hike after the Fed chair's comments at Jackson Hole last Friday. September is historically a volatile month, and that volatility should continue. The VIX rose 9.5% the prior day, back above 16, though that is still historically low given all these forces.
Dell (DELL) - Blowout Quarter
DELL beat every metric and raised guidance despite a high bar. Revenue grew 58% year-over-year, beating expectations by over $2 billion. EPS rose 203% year-over-year, above the roughly $4.90 expected. The Infrastructure Solutions Group came in at $31.8 billion, up 89% year-over-year. AI-optimized servers hit $16.4 billion, up 100% year-over-year, with a new record of $60.9 billion in AI orders and $95 billion in AI backlog that keeps climbing.
Legacy lines also jumped: traditional servers and networking rose 122% year-over-year to $10.5 billion, and storage rose 26%. Chairman Michael Dell posted that good things happen when you report EPS growth at this rate. The results fit the pattern from AI service providers like Cerebras and Nebius, which need DELL products, driving these large moves. On valuation worries, the "E" in the P/E is exploding, so the company is growing into higher multiples.
Palo Alto Networks (PANW) - Solid Beat, High Bar
PANW shares came under mild pressure after results, even though the stock had roughly doubled year to date. Some of the move may already have been priced in after the stock rallied following CrowdStrike (CRWD) and Okta (OKTA) earnings last week, leaving it just below record highs.
Revenue rose 34% year-over-year to $3.41 billion, beating the roughly $3.35 billion estimate. Next-generation security annual recurring revenue reached $9.1 billion, up 63% year-over-year. Remaining performance obligations rose 34% year-over-year to $21.2 billion. EPS came in at $12 per share, about 7 cents above expectations. Free cash flow margin hit 38.4% for full fiscal 2026. Guidance was raised slightly, with NGS ARR expected in line.
This was not a spectacular beat, mainly because the bar was very high. The CEO noted customer inquiries about cybersecurity breaches keep growing - over 2,000 this quarter, up from about 1,200 last quarter - as AI use ramps up. There is little to fault in the results; the expectations were simply steep.
