Markets Near Highs
What happened last week?
- The S&P 500, Dow, and Nasdaq advanced by 0.94%, 1.74%, and 0.81%, respectively.
- This week, all eyes will be on the Fed’s Jackson Hole Symposium on August 21-23 and developments following Presidents Trump and Putin meeting on Friday in Alaska. The theme at Jackson Hole is “Labor Markets in Transition: Demographics, Productivity, and Macroeconomic Policy.”
- Investors will try to gain insight on how the Fed sees the impact of demographics, immigration, AI, fiscal attempts to increase US production and deficits. Will Chair Powell appear closer to cutting rates or will he push back?
3 Things to Know
Factor Volatility Has Increased Due to Mixed Economic Data
Companies are just beginning to digest their changing cost structures, and we believe tariff-driven inflation and margin/consumption pressures are still in the early innings.
We are watching several policy events to inform our view on market leadership:
- the court ruling on the legality of IEEPA tariffs
- sector-level tariff announcements
- the president’s selection for the next Fed chair
While investors are eager to move tariffs into the background and continue to focus on optimistic themes like AI and deregulation, we believe market volatility could be a theme later this year.
The Fed Will Cut, but Recent Data Limits the Magnitude of the Package
We believe that additional members of the Fed are growing more comfortable with interpreting tariff-driven inflation as a one-time event rather than a sustained trend.
Chair Powell’s speech at the annual Jackson Hole Symposium next week may provide a preview of his latest thinking, but recent Fed discourse points to rising concern of labor market weakness and less focus on inflation.
The August labor market and CPI reports released early September, just prior to the Fed’s decision on the 17th, will be the next key inputs into market pricing for the duration and magnitude of the next leg of this cutting cycle that started at the same Fed meeting a year ago.
Retail sales data on Friday exemplifies the Fed’s predicament: nominally (i.e. with price effects), the consumer is still spending — but underneath the surface, cracks are emerging as seen in weaker restaurant sales, typically a bellwether for consumer activity.
Chinese Equities Reached Multi-year Highs
Chinese equities have been buoyed by record-low domestic interest rates and a weakening dollar, which has supported liquidity in local markets.
Recent IPO activity in mainland China and Hong Kong reflect this dynamic, with Hong Kong reclaiming its top global IPO exchange position by achieving a sevenfold increase year-over-year in new issuance for 1H25.
Fiscally, policymakers continue to roll out demand-side stimulus to offset unemployment drag, including nationwide consumption coupons and childcare subsidies. The government is also highly focused on addressing deflation by curbing price wars in areas like EVs and respective supply chains.
See our weekly CIO Strategy Bulletin for more details