Slow and steady, and the US Treasury proved it in a very visible way. Long-dated US Treasury yields plunged sharply after the department announced it would double the size of its buyback operations for securities maturing in 10 years and up — from $2 billion to at least $4 billion per operation, starting September 9. The stock market reacted modestly: the S&P 500 added a meagre 0.2%, while the WSJ dollar index tumbled along with Treasury yields.

On Wall Street, the decision was read clearly: Treasury Secretary Scott Bessent is worried about the prolonged sell-off in government debt. "Bond traders stop panicking when Bessent panics," Bianco Research quipped, paraphrasing an old market saying about the Fed. Still, not everyone shares the optimism: the scale of the buybacks looks modest against a July budget deficit of $432 billion, so the move may be more symbolic than structural.

Meanwhile, the Federal Reserve's minutes from the July meeting exposed a growing split among officials. Three of the twelve members of the Federal Open Market Committee voted for a rate hike, although the majority preferred to keep the status quo. In effect, the central bank ceded the initiative to fiscal authorities for the first time in a long while: while the Fed debates monetary restriction, the Treasury is moving Treasury yields via its market operations.

There are other reasons for concern. About 45% of the S&P 500's market capitalization is tied to AI?related companies, and the seven largest tech giants account for more than a third of the index. The Shiller CAPE ratio hasn't been this high since the dot-com bubble, and skeptics are already warning of an AI bubble popping. Their arguments have merit: companies are finding it increasingly difficult to meet the profit expectations that have been driven up in recent years.

Capital Economics believes bond yields have long played second fiddle to AI in terms of influence on the broad stock index — and that is unlikely to change soon. History need not repeat itself exactly: instead of a blow-up, we may simply see a slower landing for the tech sector. In that case, the market would be correcting rather than collapsing, bringing overblown investor expectations back to more reasonable levels.

So, the bond market has bought itself a breather, while the equity market got a fresh reason to doubt. Is this really a bubble, or are tech stocks simply coming in for a slower landing than expected? I doubt we'll have a clear answer before the next earnings season.

Technically, little has changed on the daily S&P 500 chart. The battle for fair value at 7,745 is going on. A breakout above that level would justify adding longs; conversely, the bulls' failure to mount an effective assault would be a reason to sell.