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Aug-26 Outlook

TrendWell Digest: August 2026 ETF Picks

July delivered whiplash on both inflation and geopolitics. June CPI, released mid-month, fell 0.4%—the largest monthly decline since April 2020—pulling annual inflation down to 3.5% as gasoline dropped nearly 10% during the mid-June ceasefire. Then the ceasefire collapsed: renewed strikes and blockade threats sent Brent back to roughly $86 and pump prices above $4, and the Fed's July 29 hold came with three dissents favoring a hike—markets now price roughly 61% odds of a September increase. Notably, the bond market's response has been a steepening: long yields drifted higher while the front end stayed pinned by seven months of unchanged policy. This month's five picks—blue chips, global equities, mid-caps, and energy itself—align with exactly that configuration. Based on more than 25 years of historical data (back to October 2000), when all of these predictive drivers have aligned as they do now, this group has delivered an average annualized return of 14%.

DIA — SPDR Dow Jones Industrial Average ETF

DIA tracks the Dow Jones Industrial Average, providing exposure to 30 large U.S. blue-chip companies.

  • Muted AI forecast for energy: Google's TimesFM AI forecasting model projects just a 1% return next month for energy stocks (XLE)—the model reads the post-ceasefire-collapse oil rebound as largely spent. Stable energy expectations mean predictable input costs for the Dow's industrial, transport, and consumer franchises. DIA has averaged 14% annualized when the XLE forecast was 1% or lower, versus 5% otherwise.
  • Muted AI forecast for consumer discretionary: TimesFM projects roughly a 1% return next month for consumer-discretionary stocks (XLY), consistent with households squeezed by $4 gasoline. The relationship is contrarian—restrained expectations for consumer cyclicals have historically preceded modestly better blue-chip months: DIA averaged 9% annualized when the XLY forecast was this low or lower, versus 7% when the model projected more. A positive but modest edge.

DGT — SPDR Global Dow ETF

DGT tracks the Global Dow Index, offering exposure to 150 leading large-cap companies across developed and emerging markets.

  • Short-rate volatility dormant: The three-month volatility of the 3-month Treasury yield (WGS3MO) registers just 4% of its historical norm—the direct product of a Fed that hasn't moved since December. When short-term rates are this stable, global financing conditions are predictable, a favorable backdrop for multinational blue chips. DGT has averaged 14% annualized when WGS3MO volatility was this dormant or calmer, versus 3% when the front end was churning.
  • Staples lagging over the past year: XLP (Consumer Staples) is up just 6% over twelve months—trailing performance that signals investors haven't crowded into defensive names. Absence of a defensive bid historically accompanies broad global equity strength. DGT has averaged 11% annualized when the XLP twelve-month gain was 6% or lower, versus -1% when staples were outperforming.
  • Muted AI forecast for energy: TimesFM's roughly 1% projected return for XLE signals input-cost stability for globally diversified industrials and manufacturers after months of oil whipsaw. DGT has averaged 11% annualized when the XLE forecast was this low or lower, versus 3% otherwise.

IJJ — iShares S&P Mid-Cap 400 Value ETF

IJJ tracks mid-cap U.S. value stocks, blending the size premium of mid-caps with value-factor exposure.

  • Muted AI forecast for energy: TimesFM's roughly 1% projected return for XLE points to margin relief for the industrial and manufacturing names concentrated in mid-cap value—the segment most exposed to fuel and materials costs during the war-driven spikes. IJJ has averaged 26% annualized when the XLE forecast was 1% or lower, versus 5% otherwise—the strongest single alignment in this month's dataset.
  • Muted AI forecast for consumer discretionary: TimesFM's roughly 1% projection for XLY reflects a cautious consumer, but the relationship is contrarian: subdued expectations for consumer cyclicals have historically marked better entry months for mid-cap value. IJJ has averaged 16% annualized when the XLY forecast was this low or lower, versus 6% otherwise.
  • Money markets still edging hawkish: The prior month's change in the spread between 3-month Treasury yields and the Fed funds rate (T3MFF) rose 29%—extending June's sharp repricing at a gentler pace as markets moved to roughly 61% odds of a September hike. That drift historically reflects an economy strong enough to absorb tighter policy, an environment where cyclical mid-cap value leads. IJJ has averaged 13% annualized when T3MFF rose this much or more, versus 9% otherwise.

MDY — SPDR S&P MidCap 400 ETF Trust

MDY tracks the S&P MidCap 400 Index, providing broad exposure to mid-sized U.S. companies.

  • Front-end yields barely moved: The prior month's change in the 3-month Treasury yield (WGS3MO) was a marginal uptick—a few basis points—with the Fed on hold. No tightening shock at the short end means no sudden increase in financing costs for mid-caps. MDY has averaged 15% annualized when the WGS3MO monthly move was this small or smaller, versus -1% when the front end jumped.
  • Long yields rising—curve steepening: The prior month's change in the 10-year Treasury yield (WGS10YR) was a more meaningful rise, mirroring July's post-FOMC move where the 10-year climbed while the 2-year slipped. A steepening curve driven by the long end historically signals growth and reflation expectations rather than policy panic—constructive for cyclical mid-caps. MDY has averaged 14% annualized when the WGS10YR monthly rise was at this level or larger, versus 9% otherwise.
  • Short-rate percentage change contained: Measured in percentage terms, the prior month's change in the 3-month Treasury (DGS3MO) was just 2%—the same anchored-front-end story confirmed in a second data series. MDY has averaged 14% annualized when the DGS3MO monthly change was 2% or lower, versus 5% when short rates moved faster.

XLE — Energy Select Sector SPDR Fund

XLE tracks the S&P Energy Select Sector Index, including major oil and gas producers, refiners, and energy equipment companies.

  • The AI model's own energy forecast is muted—historically a contrarian buy signal: TimesFM projects only about a 1% return for XLE next month. Counterintuitively, restrained model expectations have preceded XLE's best stretches—muted forecasts tend to coincide with light positioning and low expectations froth, leaving room for upside surprises like a Hormuz re-escalation. XLE has averaged 21% annualized when its own TimesFM forecast was 1% or lower, versus 5% when the model was more optimistic.
  • Muted AI forecast for consumer discretionary: TimesFM's roughly 1% projection for XLY reflects consumers strained by energy costs—and environments where the consumer is squeezed by fuel prices are, almost by definition, environments where energy producers are capturing that margin. XLE has averaged 13% annualized when the XLY forecast was this low or lower, versus 6% otherwise.
  • Consumer-sector trading activity elevated: Trading volume in XLY, measured on a 30-day average, is up 60% versus a year ago—heavy repositioning around consumer names as investors debate the gas-price squeeze. Historically this churn has coincided with marginally better energy returns: XLE averaged 10% annualized when XLY volume growth was at this level or higher, versus 9% otherwise—a slim edge, included for completeness.

Conclusion

August's setup is defined by a hawkish hold and a fragile ceasefire: the Fed's front end is anchored while long yields drift up, inflation's June reprieve is already reversing at the pump, and the AI forecasting layer sees little momentum in either energy or the consumer—conditions that have historically favored blue chips, mid-caps, and, contrarian as it reads, energy itself. With three FOMC dissents on the table and September hike odds near 61%, the market's next move hinges on exactly the rate and energy indicators this month's drivers capture. Across more than a quarter century of data, this alignment has been a favorable one—and we hope your portfolio continues to TrendWell.

This article is for informational purposes only and does not constitute financial advice.

Sources:

  • CNBC, "Divided Fed holds interest rates steady," July 29, 2026 (cnbc.com)
  • CNBC, "Here's the inflation breakdown for June 2026 — in one chart," July 14, 2026 (cnbc.com)
  • CBS News, "Inflation eased more than expected in June as gas prices fell," July 14, 2026 (cbsnews.com)
  • CNN Business, "The Fed's preferred inflation gauge cooled in June. It might not last," July 30, 2026 (cnn.com)
  • Chase, "Kevin Warsh Says Fed Will 'Deliver Price Stability' After July Hold," July 2026 (chase.com)