Equity Markets Rally After Fed Chair Powell Signals Potential Rate Cut

Equity Markets Rally After Fed Chair Powell Signals Potential Rate Cut

Global markets ended the week higher, marking a sharp reversal from the previous five sessions of declines. Stocks rallied on Friday following Fed Chair Jerome Powell’s remarks at the Jackson Hole symposium, which hinted at a potential rate cut in September. Global equities, as measured by the MSCI All Country World Index (ACWI), gained 0.37%, while U.S. equities, represented by the S&P 500, advanced 0.30%.

Fed Signals Shift

As mentioned above, at the Fed’s annual Jackson Hole symposium on Friday, Chair Jerome Powell signaled that incoming data may warrant a shift in the Federal Reserve’s current policy stance. While the Fed remains vigilant about the risk of renewed inflation, it also acknowledged that the labor market could weaken quickly given recent signs of softening. Markets broadly welcomed the message, viewing it as an indication that interest rates may be moving lower in the months ahead.

Retail Giants Beat Expectations

Big-box retailers posted strong earnings last week, with Walmart and Target exceeding expectations despite tariff uncertainty and consumer spending concerns. Amazon reported 11% year-over-year growth in North American retail sales, while Home Depot and Lowe’s noted steady demand for small-scale home projects. Overall, second-quarter results suggest the U.S. consumer remains resilient, though companies are preparing for rising costs ahead.

Large-Cap Value Extends Winning Streak

U.S. large-cap value stocks outperformed their growth counterparts for the second consecutive week, narrowing growth’s year-to-date lead. The value index gained 1.8% for the week, while the growth index fell –0.8%, pressured by weakness across many technology names. This rotation into value names suggests that investors are seeking companies with strong balance sheets and attractive relative valuations amid recent market volatility. It also underscores why we maintain exposure to both growth and value stocks, providing diversification across different market environments.

Looking Ahead

For the upcoming week, with the Fed’s policy meeting scheduled for mid-September, officials are expected to closely monitor the August 29 release of the Personal Consumption Expenditures (PCE) Index, the Fed’s preferred measure of inflation. The most recent release, covering June, showed PCE inflation at an annual rate of 2.6%, the highest in four months. Excluding food and energy, core inflation came in at 2.8%.

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.