Stocks consolidated this week after enjoying their best performance of the year last week. This week, the key events were earnings reports from retailers, the FOMC minutes for the July meeting, weekly initial jobless claims, existing home sales, and the annual Jackson Hole Economic Symposium on Friday. Investors were hoping to get more clarity from the central bank after rallying earlier this month on hopes of a rate cut this September.
Stocks and bonds consolidated after big moves this month, waiting to hear more from Chairman Powell. Gold was able to push to a new all-time high this week (see chart below) and trade close to that on Friday while silver reached back above $30. After disappointing investors at the July meeting with a definite maybe for a rate cut, there was a lot riding on the Jackson Hole speech from Chairman Powell, and he didn’t disappoint this time.
Stocks have been on a winning streak, with the S&P 500 rising in 11 of the last 14 trading days. This rally has been driven by optimism that a soft landing for the economy is still possible, supported by recent economic data and expectations that the Federal Reserve will cut rates in September. The CME FedWatch Tool, which monitors changes in Fed rate expectations based on Fed Futures contracts, has shown for the past month that investors are widely anticipating a rate cut in September. Given the economic data released this month, these hopes have shifted, with a 36.5% chance now being priced in for a half-percent rate cut.
When the FOMC minutes from the July meeting were released on Wednesday, investors took note of the comment that "the vast majority observed that, if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting." This led to some profit-taking in stocks, partly in response to the idea of a potential rate cut in September, but also due to mixed economic data. Initial jobless claims were higher than expected, flash PMI data for manufacturing was weak, while the services index was stronger, and existing home sales for July rose 1.3%. The strength in services might suggest that a half-percent cut could be overly optimistic, but the market’s reaction to Powell’s speech on Friday indicated alignment between investors and the central bank.
On Friday, Powell moved away from the uncertainty he conveyed at the July meeting, stating that "the time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks." Although he stopped short of explicitly stating the Fed's next move, his remarks, coupled with the FOMC minutes, were enough to satisfy investors, and the S&P 500 ended the week higher on Friday.
In other news this week, investors responded positively to earnings news from retailers Target and TJX Cos that offset disappointing guidance from Macy’s. Target beat second quarter earnings expectations and raised their guidance for the fiscal year 2025 outlook. TJX also beat expectations but offered below-consensus earnings guidance for the next quarter; however, they announced a stake in Brands for Less that seemed to appease investors. Macy’s fell sharply after reporting earnings and lowering its full-year sales and comparable sales guidance. Other negative responses to earnings were found in Snowflake, Urban Outfitters, Williams-Sonoma, and Advance Auto Parts while Zoom Video was up after their earnings release.
By the end of the week, small-cap stocks outperformed as investors grew more confident in a potential rate cut in September and the possibility of a soft landing for the economy. The top-performing sectors on Friday included Real Estate, Consumer Discretionary, and Energy, reflecting optimism about future economic growth. Regional bank stocks also attracted attention as a leading industry group.
Overall, the market's movements this week suggest that investor sentiment is closely tied to expectations of Federal Reserve actions and economic data. With the central bank signaling a readiness to adjust policy, and economic indicators showing mixed but hopeful signs, investors are positioning themselves for potential rate cuts and sustained economic growth. The anticipation for a soft landing and further policy clarity from the Fed has bolstered confidence across a range of sectors.
Next week, all eyes will be on Nvidia's earnings, as the company is seen as a key representative of the AI movement on Wall Street. KeyBank analyst John Vinh expects Nvidia to beat earnings expectations and raise its guidance, citing that modest expectations for Blackwell shipments in fiscal Q3 have been offset by stronger Hopper bookings. Meanwhile, Deutsche Bank believes Nvidia will report a strong quarter and that any potential delays in Blackwell shipments are unlikely to affect the company’s outlook. Nvidia’s earnings have significantly influenced market sentiment in the past, making its earnings call on August 28th a key event to watch.
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