Click to View PDF
Week in Review
Equity Markets:
Stocks generated mixed performance in a relatively tight range last week. While the Dow Jones Industrial Average came down (0.26%), the S&P 500 rose 0.37% while the Nasdaq gained a full 1.16%. Small caps also rallied ahead, with the Russell 2000 Index gaining 1.07%.[1] These gains largely offset the previous week’s declines, while paying attention to the fact that the DJIA has been down the past two weeks in a row. Still, the major Large Cap averages all continue to hover fractionally away from new highs. [2]
The 2Q25 Earnings Season has largely concluded, and investors are now looking ahead. Near-term, the focus is on the Federal Open Market Committee’s meeting next week, where it’s largely presumed that they will begin lowering the Key Rate (Fed Funds rate). Fueled by robust earnings growth, the S&P 500’s Forward Price/Earnings Ratio now stands at 22.1. Being priced at 22x earnings is at the upper level of the S&P 500’s long-term historical price ranges.[3]
Fixed Income Markets:
Yields fell broadly at the end of last week. This coincided with the announcement of the Unemployment Rate, which hit a nearly four-year high. 10-Year Treasury yields fell 15 basis points, its lowest level since the April lows immediately following the “Liberation Day” tariffs. 2-Year Treasurys fell as well, coming down 11 basis points. The disappointing employment data also furthered the idea that the Federal Reserve will cut interest rates by as many as three times throughout the rest of the year. Pricing advanced across the board for fixed income, including Treasurys, Municipals, Investment Grade Corporates, and High Yield Corporates.[4]
Economic:
Employment metrics were the focus of last week, including Nonfarm Payrolls, the JOLTS, ADP Private Payrolls, and Challenger Layoffs. Primary among these was the Nonfarm Payrolls (NFPs) which showed just 22,000 new employed positions in the US in August, all the while expectations were for 75,000. Also, downward revisions were announced for previous months that showed there was a net loss for employment in June, not a gain as initially thought. The NFP’s relatively weak delivery led to the Unemployment Rate rising to 4.3%, which is the highest it’s been since October 2021.[5] The CME Group’s FedWatch tool indicates 88% of economists polled believe the FOMC will cut interest rates by 25 basis points next week, which would bring the Key Rate down to 4.00-4.25%.[6]
Looking Ahead
Equity Markets:
Stock markets are more cognizant of the broader economy now that earnings season has largely concluded. Here, they are confronted with opposing expectations for what lies ahead. On one hand, poor employment numbers further the understanding that the FOMC will cut interest rates, which in turn should lead to increased equity valuations. However, this also indicates that the US economy is slowing, which is inherently dangerous for near-term equity pricing.
Perhaps it is best for investors to approach equity markets with a higher degree of discretion than otherwise, making sure to best pursue one’s long-term investment objectives correctly. It’s also important to not allow potential short-term volatility to dismiss the purpose of long-term equity allocations in a broader portfolio mix.
Fixed Income Market
The broad drops in yields present investors with a sound opportunity to further their fixed income positions, doing so at entry points more attractive than otherwise. Over the coming months, we expect risk premiums to widen further, enhancing the attractiveness of bonds. Should investors begin to pivot their holdings away from equities and more towards fixed income, we can anticipate duration to resume its traditional role as a hedge to growth.
Broader economic considerations should be at the front of investors’ minds throughout this time. Currently, we are seeing lower consumer and business confidence resulting from our new tariff regime, with prices rising even as the legalities of the tariffs meander through the courts. Upcoming news on inflation will bring more clarity, all while geopolitical concerns continue to spike.
Economic:
The upcoming week will be dominated by news on inflation. The Consumer Price Index (CPI) will be announced on Wednesday, and the Producer Price Index (PPI) follows on Thursday. These metrics will provide a sounder view of the current levels of inflation. They also will provide greater insight into the next moves by the FOMC as they consider interest rate cuts. For example, they could elect to cut by 50 basis points. They also could consider implementing a series of forward rate cuts throughout the rest of the year and into the next. [7]
Sources:
1) JP Morgan Asset Management
2) John Hancock Investment Management, LLC
https://www.jhinvestments.com/weekly-market-recap#fund-industry-overview
3) FactSet Research, Inc.
4) Nuveen, LLC
5) Bureau of Labor Statistics
https://www.bls.gov/news.release/empsit.nr0.htm
6) CME Group
https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
7) Charles Schwab
https://www.schwab.com/learn/story/stock-market-update-open
Important Disclosures:
Investment Advisory Services offered through Krilogy®, an SEC Registered Investment Advisor. Please review all prospectuses and Krilogy’s Form ADV 2A carefully prior to investing. This is neither an offer to sell nor a solicitation of an offer to buy the securities described herein. An offering is made only by a prospectus to individuals who meet minimum suitability requirements.
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.
Services and products offered through Krilogy® are not insured and may lose value. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein.
