Shifting Sentiment at Summer Summit
Inflation improvement and weaker economic data shift Fed sentiment
Key Observations
- Markets were generally positive in August, despite a tough start to the month as investors wrestled with weakening economic data, geopolitical unrest and global growth.
- Shifting language at the Federal Reserve’s Jackson Hole summit indicated a renewed focus on the employment situation more so than inflation.
- Markets have priced in a first rate cut in September, shifting the question of “when?” to “how much?”
Market Recap
July’s volatility carried into early August as investors navigated the unwind of the Japanese yen carry trade, geopolitical unrest in the Middle East and growing concerns about economic growth following weak ISM and labor market reports. Equity markets initially declined in the first week, with U.S. small caps hit hardest. However, a favorable earnings season and shifting sentiment at the Federal Reserve’s Jackson Hole summit boosted markets later in the month. Most equity markets ultimately finished higher, led by international developed stocks (MSCI EAFE Index), which benefited from a weakening U.S. dollar. The S&P 500 Index (U.S. large cap) also ended the month up, supported by a strong earnings season. With 93% of companies reporting, Q2 blended year-over-year earnings growth for the S&P 500 reached 10.9%, the highest measure since 2021. Small-cap stocks (Russell 2000 Index) rebounded but remained just below positive territory for the month.
