Week in Review
Equity Markets:
US stock markets ended the week fractionally lower. Gross Domestic Product expanded at a 3.3% pace, which fueled market positivity. However, last Friday’s trading offset this growth, with end-of-month selling taking place ahead of the three-day holiday weekend. Friday’s slight declines did not prevent the S&P 500 Index from achieving a new all-time high, as it closed above 6,500 for the first time[1] last week, as well as both its 19th and 20th new record-closes for the year[2]. Small caps continued to rally, with the Russell 2000 Index rising 0.22% for the week, having now appreciated 9.00% in the first two months of the Third Quarter[3]. Notably, ten of the eleven market sectors were positive last month[4].
This Earnings Season has now seen 489 S&P 500 components report[5]. 79.6% have beaten Wall Street’s expectations, which is above the average of 67.0%, historically since 1994. This is also higher than its 76% average over the past four quarters.
Fixed Income Markets:
US Treasurys modestly appreciated in value for the week, with robust demand upon purchasers at the Treasury Department’s auction[6]. Yields on longer-term Treasurys rose slightly while contracting for short-term notes following the anticipated announcement of Personal Consumption Expenditures, the Federal Reserve’s preferred metric for gauging inflation.[7].
Concerns over Federal Reserve independence flared up again last week when President Donald Trump moved to fire Fed Governor Lisa Cook over claimed mortgage fraud. This issue spurred a steepening of the yield curve at the start of last week, which was more pronounced on shorter-term notes[8].
Economic:
The Personal Consumption Expenditures Index reported elevated inflation levels. Headline PCE read in at a 2.6% annual rate in July, and Core PCE rose at a 2.9% annual rate. Both readings met Wall Street’s expectations. The implication is that inflation remains above the Federal Open Market Committee’s target rate of 2.0%. This increases the significance of unemployment within the Fed’s dual mandate. The CME Group’s FedWatch tool indicated that, as of the morning of September 2, 2025, Wall Street anticipates with 91.7% certainty that the FOMC will cut interest rates by 25 basis points when it meets on September 17[9].
Looking Ahead
Equity Markets:
Valuations remain elevated. The S&P 500’s Forward 12-month Price/Equity Ratio now stands at 22.9, above both the 5-year average of 19.9 and the 10-year average of 18.5[10]. The implication is that stocks are currently expensive with valuations extended. This presents a heightened variable to stock investors as market pullbacks from headline risks could lead to sharper short-term pullbacks. Among these variables is the future of the White House’s new tariffs: Friday afternoon, the US Court of Appeals affirmed a lower court ruling from May that determined most tariffs exceed presidential authority and therefore invalid. Their ruling has given most tariffs an extension of October 14, to allow for the White House to appeal to the US Supreme Court.
The month’s start reminds us that Septembers have historically underperformed all other months of the calendar year, down 55% since 1928 and producing an average monthly loss of -1.2%[11]. When this pattern is matched with currently elevated equity valuations, it bodes caution upon investors. We recommend investors revisit their risk tolerances and long-term objectives, noting the need to preserve capital amidst seasonality patterns.
Fixed Income Market:
We believe current market conditions present sound opportunities for fixed income investors. The markets are pricing in two interest rate cuts by the Fed this year, with a possible third cut in October. The strong likelihood of these rate cuts bodes well for fixed income investments, which gives us a positive outlook upon the remaining four months of the year. Concurrently, we emphasize investors seek out bonds with higher credit quality in the face of volatility.
Economic:
The primary focus is upon employment this week. Nonfarm Payrolls and the Unemployment Rate arrive this Friday from the US Bureau of Labor Statistics. The NFP numbers will be foundational for the FOMC’s decision making process over interest rates, as tangible employment weakness will give credence to the Fed cutting interest rates[12]. Multiple other employment reports will also arrive this week, including the JOLTS, ADP Private Payrolls, and Challenger Layoffs. This week we also see new reports on the ISM Manufacturing Index, Construction Spending, Capital Goods, and the International Trade-Goods Balance.
Sources:
1) John Hancock Investment Management, LLC
https://www.jhinvestments.com/weekly-market-recap#fund-industry-overview
2) Seeking Alpha
https://seekingalpha.com/article/4818064-what-moved-markets-this-week
3) JP Morgan Asset Management
4) Raymond James
5) LSEG I/B/E/S
https://lipperalpha.refinitiv.com/wp-content/uploads/2025/08/TRPR_82221_814.pdf
6) LPL Financial
https://www.lpl.com/research/blog/weekly-market-performance-august-29-2025.html
7) Wells Fargo Advisors
https://www.wellsfargoadvisors.com/research-analysis/commentary/bond-market-commentary.htm
8) T. Rowe Price
https://www.troweprice.com/personal-investing/resources/insights/global-markets-weekly-update.html
9) CME Group
https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
10) FactSet Research, Inc.
11) RBC Wealth Management
12) Seeking Alpha
https://seekingalpha.com/article/4818145-wall-street-week-ahead
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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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