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Week in Review
Equity Markets:
The major indices rallied at the end of the week following Federal Reserve Chairman Jerome Powell’s speech at the Fed’s annual retreat. Powell indicated the Federal Open Market Committee was open to interest rate cuts in September; that furthered weekly turnarounds for the broader markets, ending a weeklong retreat in equity prices[1]. The Dow Jones Industrial Average rose 1.59% last week, reaching its first record high for the year[2]. The S&P 500’s 1.5% Friday rise led to a weekly increase of 0.30%. Friday’s rally, however, couldn’t eclipse Nasdaq’s recent declines, as that market came down 0.55% last week[3].
This earnings season has so far seen 474 companies in the S&P 500 report. Of these, a full 80.0% have beaten Wall Street’s estimates, above both the previous four quarters’ average beat/miss ratio of 76.4% and the index’s long-term average of 67.1%. This earnings season has seen companies reporting earnings that, in aggregate, are 8.0% above estimates, quite higher than the long-term aggregate average of 4.3% above analyst estimates[4].
Fixed Income Markets:
US government bonds recognized slight increases in pricing last week, reflective of Chair Powell’s speech indicating a greater likelihood that interest rates could come down next month. Yields on Treasurys fell in response, with the 2-year falling 7 basis points to now stand at 3.68%; the 10-year also coming down 7 basis points to a current 4.26%; and the 30-year retracting 4 basis points to yield 4.88%. Ratings agency S&P Global affirmed their AA+ credit rating on long-term US sovereign debts. They concluded that the US economy would avoid persistent deterioration amidst major policy changes, and that tariff income would help offset decreased tax revenues[5].
Economic:
Chair Powell’s speech, at the Fed’s annual Economic Policy Symposium in Jackson Hole, WY, emphasized how current economic conditions “may warrant adjusting the policy stance.” He noted “sweeping changes” in US tax, trade, and immigration policies, from all of which he indicated “the balance of risks appears to be shifting.” Concurrently, CME Group’s FedWatch tool indicated an 86% likelihood that the FOMC will cut the Key Rate (Fed Funds rate) by 25 basis points at its next meeting, a reduction that would bring interest rates down to 4.00-4.25%[6]. Meanwhile, tariffs broadly levied upon US goods by both Canada and the European Union were ended, perhaps signaling interest in continued tariff negotiations by all parties.
Looking Ahead
Equity Markets:
The S&P 500’s P/E Ratio stands at 22.32, indicating that valuations remain highly elevated. This reflects both the robustness of the current earnings season as well as investors’ appetite for riskier assets. Recent market highs validate this understanding of equities being priced at a premium. Nasdaq’s recent decline correlates with some investors selling off some of their best-performing positions this year. This selling also comes ahead of the major rebalancing of positions that mutual funds normally enact in September.
Perhaps these factors indicate a need for relative caution by investors. Equity markets are currently priced optimally; should future expectations fall short, negative market volatility could impact equity pricing towards the downside. It would therefore be prudent for investors to revisit their current allocations and consider their risk tolerances, mindful of long-term objectives and short-term volatilities.
Fixed Income Market:
S&P Global’s credit ratings validated long-term US sovereigns’ investment worthiness amidst considerable US policy changes and fluctuations. Looking ahead, we do not anticipate a recession for the US in the near term. Tariffs still present considerable issues, however, with both consumer and business confidence being tested. S&P Global still foresees net general government debts rising closer to 100% of US GDP over the long term. And of course, considerable geopolitical uncertainties cast a shadow over general stability.
Current pricing may be at a welcoming point for investors to consider new allocations into US Treasurys, as well as Municipal Bonds and Investment-Grade Corporates. A widening in risk premiums could make bond pricing more attractive over the coming quarters. We can anticipate bond duration reassuming its value as a hedge to growth[7].
Economic:
Personal Consumption Expenditures (PCE) will be announced on Friday. This metric is the preferred tool the Federal Reserve utilizes to gauge inflation; specifically, the Core PCE figure, which excludes the costs of food and energy from its calculation. Last month saw Headline PCE read inflation at an annual rate of 2.6%, and Core PCE clocked in at 2.8%. This will be central to the FOMC’s gauging inflation and their considerations for interest rate cuts.
Sources:
1) John Hancock Investment Management, LLC
https://www.jhinvestments.com/weekly-market-recap#fund-industry-overview
2) Charles Schwab
https://www.schwab.com/learn/story/stock-market-update-open
3) JP Morgan Asset Management
4) LSEG I/B/E/S
https://lipperalpha.refinitiv.com/wp-content/uploads/2025/08/TRPR_82221_814.pdf
5) S&P Global
https://www.spglobal.com/ratings/en/regulatory/article/-/view/type/HTML/id/3426678
6) CME Group
https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
7) Nuveen
https://www.nuveen.com/en-us/insights/investment-outlook/fixed-income-weekly-commentary
Important Disclosures:
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All expressions of opinion are subject to change. This information is distributed for educational purposes only, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services.
Diversification does not eliminate the risk of market loss. Investments involve risk and unless otherwise stated, are not guaranteed. Investors should understand the risks involved of owning investments, including interest rate risk, credit risk and market risk. Investment risks include loss of principal and fluctuating value. There is no guarantee an investing strategy will be successful. Past performance is not a guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. The S&P data is provided by Standard & Poor’s Index Services Group.
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