Fixed Income & Equities Markets Week in Review

Stocks resumed their upward momentum during this final week of August—and what a nice month it was for performance gains. Through the Thursday, August 29th close, for the month the Dow Jones Industrial Average (Dow) gained 3.58%, the S&P 500 rose by 2.67%, the Nasdaq Composite rose by 2.82%, the Russell Mid Cap Index gained 2.78%, and the small-company dominated Russell 2000 powered ahead by an impressive 7.67%. Small cap stocks fared well, in part due to a rise in hopefulness that the Federal Reserve (Fed) might cut rates at its September meeting. This was the fourth consecutive month of gains for the indices. Of note, during the week the S&P 500 posted another fresh all-time high, closing at 6,501.86.

The August gains have really bolstered overall performance for the indices (take a look at year-to-date (YTD) gains in the table below, which obviously include the losses experienced during the mid-February through early April market correction). All of the domestic indices’ YTD gains are now in the upper-single digits to lower-double digits. Even more impressive is the rally that occurred after the end of the correction in early April. Between April 8th and August 28th, these are the gains achieved by the indices: Dow +22.02%, S&P 500 +31.14%, Nasdaq Composite +42.51%, Russell Mid Cap Index +29.09%, and Russell 2000 +35.77%.

A focal point this week was the July Personal Consumption Expenditures (PCE) data, which is the Fed’s favored inflation gauge. Core PCE increased 0.3% month/month in July, in line with consensus and June’s unrevised 0.3% rise. Annualized core PCE was up 2.9%, in-line with consensus and slightly up from June’s 2.8% but the highest since February. Fed Chair Powell opened the door to the possibility of a September rate with his comments last week. Today’s in line PCE data will keep the market focused on next week’s labor market data—and whether the recent softening in the jobs market continues or reverses higher.

Another key event was NVIDIA’s earnings report. The $4.2 trillion company reported 2nd quarter results that beat expectations. Although the company raised its guidance for 3rd quarter results and artificial intelligence (AI) secular growth takeaways were upbeat, the news was underwhelming against elevated anticipation. Scrutiny has been rising about the durability of the AI growth story, given recent headlines about the threat of a capital spending bubble, possible monetization/profitability challenges, and the potential for increasing competition from Chinese companies.

Next week’s economic data calendar will be quite busy and includes the Institute for Supply Management (ISM) manufacturing on Tuesday, JOLTS job openings and Fed Beige Book on Wednesday, ADP private payrolls and ISM services on Thursday and nonfarm payrolls on Friday. Weakness in the payroll data could bolster expectations for a September rate cut, while strength could derail them—and potentially markets.