Weekend Update #243
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Tech stocks came under pressure this week as investors remained cautious ahead of the Jackson Hole symposium. Minutes from the Federal Open Market Committee’s July 29–30 meeting, released Wednesday, revealed that most officials viewed inflation risks as outweighing labor-market concerns, with tariffs deepening divisions within the committee. Swaps also shifted notably, reducing the odds of aggressive near-term easing and pricing in about a 70% chance of a September rate cut and fewer than two moves this year.
Powell, however, struck a more dovish tone in his Jackson Hole remarks, leaving the door open to a September rate cut. He noted that while the labor market remains stable, slowing supply and demand suggest rising downside risks to employment. On inflation, he said tariffs are likely to produce a one-time upward shift in prices that will take time to filter through the economy, keeping near-term risks tilted upward. Powell also highlighted the challenge of balancing these trade-offs and announced a revised policy framework that removes references to targeting inflation averaging 2% over time and to focusing exclusively on employment shortfalls. Markets rallied in response, with both the S&P 500 and Nasdaq climbing 1.5%.
The economic backdrop also reflected surprising strength. U.S. manufacturing expanded at its fastest pace in more than three years in August, highlighting resilient demand but also adding to inflationary pressures. The S&P Global flash factory PMI rose to 53.3, its highest since May 2022, helping lift the composite PMI to the strongest level this year. Rising factory output, backlogs, and new orders fueled the best employment growth since March 2022, boosting optimism about the second half of the year. At the same time, higher import duties and rising service prices pushed sales price measures to a three-year high, signaling that consumers continue to bear the brunt of inflation.
Trade developments further supported sentiment late in the week. The U.S. and European Union unveiled new details of their framework agreement, including 15% blanket tariffs on EU exports to the U.S. alongside EU commitments to purchase $750 billion of U.S. energy and invest at least $600 billion in the U.S. economy. In a related move, Canadian Prime Minister Mark Carney announced that Canada will drop retaliatory tariffs and align with U.S. exemptions under the United States-Mexico-Canada trade pact, ensuring most Canadian goods remain shielded from punitive duties.
Next week, investors will focus on July’s PCE report, the Fed’s preferred inflation gauge, as well as accompanying personal income and spending figures.
Friday’s Close (Weekly Performance)
S&P 500 6,466.91 (+0.27%)
Nasdaq 21,496.54 (-0.58%)
Dow Jones 45,631.74 (+1.53%)
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