Equities Advance, Small Caps Lead as Investors Eye September Fed Move

Equities Advance, Small Caps Lead as Investors Eye September Fed Move

Global markets closed the week higher, supported by favorable economic data that strengthened expectations for a Federal Reserve rate cut in September. Small-cap stocks led the advance, with the Russell 2000 outperforming the S&P 500 by the widest margin since April. Global equities, measured by the MSCI All Country World Index (ACWI), gained 1.27%, while U.S. equities, represented by the S&P 500, rose 0.99%.

Small Cap Equities Surge

As mentioned above, small-cap equities surged last week, outperforming their large-cap counterparts by the widest margin since April. The Russell 2000 Index gained more than 3.0% for the week. While small caps continue to lag large caps on a year-to-date basis, the index has staged a notable rebound—after being down slightly more than 20% at its April lows, it is now up 3.39% year-to-date through Friday’s close.

Consumer Price Index

Inflation data came in largely in line with expectations, with headline CPI holding steady at 2.7% and core CPI rising to 3.1%, its highest since February. A decline in gasoline prices helped offset strength in services such as airfares, medical care, and auto repairs. While the report eased fears of a tariff-driven inflation spike, producer prices rose at their fastest pace in three years, raising concerns that businesses could begin passing higher import costs on to consumers. Equity and bond markets took the numbers in stride, viewing them as consistent with the Federal Reserve remaining on track to cut rates in September.

Consumer Sentiment

Retail sales rose 0.5% in July, driven by stronger spending at motor vehicle and parts dealers, while June’s figure was revised higher to a 0.9% gain. Control group sales, which feed into GDP calculations, also rose 0.5%, signaling steady consumer demand. Meanwhile, the University of Michigan’s preliminary August Consumer Sentiment index unexpectedly dropped to 58.6 from July’s 61.7, as concerns over rising inflation pushed year-ahead expectations up to 4.9%, highlighting growing caution among households despite resilient spending.

Looking Ahead

Looking ahead, economic releases this week will include housing data and key leading indicators, but most attention will be on Jackson Hole, Wyoming. Investors and economists will focus on the Federal Reserve’s annual three-day economic policy symposium beginning Thursday, August 21. Fed Chair Jerome Powell is among the featured speakers, with his address scheduled for Friday, which could provide further insight into the Fed’s policy outlook.

As Always

I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.