U.S. equity markets rallied to end the week, reversing the negative momentum over the previous five sessions. The S&P 500 finished the week up 0.30% after Jerome Powell’s speech at Jackson Hole suggested the Fed was open to rate cuts. Beneath the surface, equity markets saw a rotation as mega-cap technology stocks lagged while value and cyclical sectors gained ground. Several large retailers reported earnings last week, which suggested the U.S. consumer remains resilient for now, although companies largely expect rising costs in the coming quarters. Most S&P 500 sectors finished the week in positive territory. The information technology and communication services sector ended the week lower, likely reflecting profit-taking and renewed concerns about the sustainability of heavy infrastructure spending tied to artificial intelligence. The financials, industrials, and materials sectors led on the growing probability of lower rates. The energy sector rose over 3% after oil prices rose following a larger-than-expected decline in crude inventories. Foreign equities posted mixed results as the MSCI EAFE saw slight gains while emerging markets were negative for the week despite strength in Chinese equities.
Fixed-income results were positive across all segments as treasury yields fell sharply after Fed Chair Powell opened the door for rate cuts. The 2-Year Treasury yield ended the week down at 3.68% and the 10-Year yield ended down at 4.26%. Government bonds benefited the most from these comments as they outperformed across the curve last week. Bond yields fell for investment-grade corporate bonds, ending the week at 4.91%, while high-yield corporates fell to 7.23%, respectively.
Economic data was light for the week, headlined early by some mixed housing data. On Monday, the NAHB home builder’s confidence index fell to 32 in August as demand remains weak and builders are resorting to more incentives to boost sales. Housing starts increased 5.2% month-over-month in July to a seasonally adjusted annual rate of 1.428 million units, driven by strength in multi-unit starts. U.S. existing home sales rose by a better-than-expected 2.0% in July as the recent moderation in mortgage rates helped lift sales. U.S. initial and continuing jobless claims increased to 235k and 1.972M, respectively, in the week ended August 16—both by more than consensus expected, adding to evidence that the U.S. labor market is weakening. Flash S&P PMI reports came in better than expected. Services fell to 55.4, above the consensus forecast of 54.2, while Manufacturing PMI rose to 53.3, the highest level since 2022 and above consensus expectations of 49.7.