Markets advanced in August, buoyed by signs of resilience in the U.S. economy and growing confidence in monetary easing. Despite lingering trade uncertainty, corporate strength and consumer demand underpinned growth.
Inflation, however, remained sticky. Core PCE eased only slightly but stayed well above the Fed’s 2% goal, accentuating the ongoing challenge of bringing prices back to target.”
The Federal Reserve’s annual Jackson Hole symposium was a focal point. While Chair Jerome Powell typically avoids forward guidance, he struck a notably clearer tone this year, signaling that policy adjustments are necessary to sustain the expansion. Even though inflation remained elevated, the labor market – the other side of their dual mandate – is showing real cracks. His comments fueled expectations for rate cuts in the months ahead, a shift that bolstered both equity and credit markets.
Earnings season added momentum, led once again by technology and AI-related giants. Robust demand for cloud, semiconductors, and generative AI infrastructure helped sustain gains, with growth spillovers evident in adjacent sectors.
September presents a more complex landscape. Historically a volatile month for equities, markets enter with elevated valuations and increasingly crowded positioning in large-cap tech. Investor focus will be on the Fed’s September meeting, where the possibility of a first rate cut in the cycle is extremely likely.
While the economic backdrop remains constructive in the near term, risks are accumulating. Rising cross-asset correlations, narrowing leadership mixed with high valuations in equities, and higher real yields point to fragility. Investors should expect more two-way volatility in September as monetary policy, fiscal uncertainty, and geopolitics converge.