MARKET UPDATE
Xerxes Nabong, CFP®, CDFA®
Philip M. Maliniak, CRPC®
Nicole Brown-Griffin, CFP®, CDFA®, EA
Aaron Petty, Client Associate
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Fed Hints at Rate Cuts Ahead
Speed Read
Markets rebounded late last week as Fed Chair Powell signaled potential rate cuts ahead, lifting stocks outside of tech and driving Treasury yields lower. Economic data showed strength in manufacturing but a softening labor market, while strong retail earnings highlighted resilient consumer spending. With the S&P 500 up nearly 30% since April, we see any near-term volatility as an opportunity to stay invested and aligned with long-term goals.
Now the details…
Market Overview
Markets delivered a mixed performance last week, with the S&P 500 sparking a big Friday rally after four straight days of declines. The rebound followed Fed Chair Jerome Powell’s comments at the Jackson Hole symposium, where he hinted that rate cuts may be on the horizon. Energy, financials, real estate, and materials led the advance, while large-cap value stocks outperformed growth. By contrast, technology shares pulled the Nasdaq lower as investors locked in profits and weighed the sustainability of AI-related spending.
Mid-cap and small-cap stocks fared notably better, highlighting the strength of smaller companies outside the mega-caps. In fixed income, Treasuries rallied on Powell’s remarks, driving yields lower. In the near term, that means higher bond values for existing holders, lower mortgage and loan rates for borrowers, and a slightly more supportive backdrop for equities.
Fed Chair Signals Potential Shift
Powell highlighted the Fed’s dual mandate, managing inflation and supporting employment, while acknowledging that today’s policy stance is “restrictive.” With labor demand easing and immigration-related labor supply slowing, he warned that “downside risks to employment are rising.” Markets took this as a signal that the Fed is preparing for a shift, with futures now pricing in nearly a 90% chance of a 0.25% rate cut in September. Additional cuts later in 2025 and into 2026 remain on the table.
He also pointed to near-term inflation pressures stemming from tariffs but suggested these could prove temporary. Powell described the labor market as in a “curious balance,” unemployment at 4.2%, but with risks shifting to the downside.
Economic Data: Manufacturing Up, Jobs Cooling
Economic data told a mixed story. The Purchasing Managers’ Index (PMI) for August showed strength, with manufacturing activity rising to a 39-month high and signaling expansion after a long stretch of contraction. Services activity moderated slightly but remains solid. Rising input costs, largely tariff-driven, pushed price pressures to their steepest level since May.
On the labor front, initial jobless claims rose to 235,000 for the week ending August 16, exceeding expectations of 225,000. Continuing claims climbed to 1.97 million, suggesting workers are taking longer to find new jobs. Together, these trends hint at a labor market that is gradually cooling.
Retail Earnings Underscore Consumer Strength
Retail earnings were a bright spot. Walmart, Home Depot, and Lowe’s all delivered stronger-than-expected results, while Amazon reported double-digit growth in North American sales. Despite tariff-related cost pressures, retailers are demonstrating resilience, raising prices selectively or absorbing costs where necessary to protect demand. The consumer remains strong, though rising costs could eventually weigh on spending momentum.
Market Outlook
After sliding 19% from February through the April tariffdriven selloff, the S&P 500 has surged nearly 30% off its early-April low. With September and October historically weaker months, some volatility ahead is expected. Still, we view pullbacks as healthy and as opportunities to add exposure to equities at more favorable entry points.
We remain constructive on equities, with a preference for U.S. stocks across sectors. In fixed income, intermediateterm bonds (7–10 years) continue to look compelling, offering attractive yields today and the potential for price gains if rates ease through the end of this year and into 2026.
The Week Ahead
Looking forward, key data releases include consumer spending, PCE inflation (Personal Consumption Expenditures Index which is the Federal Reserve’s preferred measure of inflation), and consumer confidence surveys. On the corporate front, all eyes will be on NVIDIA’s earnings on Wednesday, which could significantly influence sentiment around AI and the broader tech sector.
During the weeks following the tariff-driven selloff, emotions were running high. Many investors grew uneasy and even considered stepping out of the market, often reacting to headlines on TV over morning coffee, alerts on their phone, or conversations with anxious friends, rather than looking at the full picture. During that period, we shared frequent communications to provide the context we felt mattered most.
With markets now improving meaningfully, we will continue to deliver major market updates and insights to help you stay focused on your long-term investment strategy and overall financial plan. As always, we thank you for your continued trust and confidence in us.
Your Team at Wealth Avenue,
