US large-cap indexes moved to record highs as investors celebrated the kick-off to what many expect to be a prolonged Fed rate-cutting cycle. The rally was also relatively broad, with the smaller-cap indexes outperforming (+9% on the week for the Russell 2000 index), although they remained below previous peaks. The initial reaction to the Fed’s jumbo rate cut was relatively muted. Indeed, investors’ celebration of the news seemed to begin on Thursday morning, with the Dow Jones Industrial Average, S&P 500 Index, and Nasdaq Composite all surging to new highs. The week’s economic data arguably had an upbeat overall tone, leading critics of the Fed’s decision to argue that policymakers had moved too decisively.

Stocks managed to post solid gains and largely recovered from the previous week’s steep losses. Growth stocks outpaced value shares by a wide margin, helped by strong performance from technology stocks which rallied aggressively higher midweek after NVDA CEO Jensen Huang said "demand was incredible“. They extended that sudden squeeze into Friday. On Wednesday, stocks initially headed sharply lower following news that core (less food and energy) consumer inflation rose to 0.3% in August, a tick higher than consensus expectations. Meanwhile, headline inflation showed an annual increase of 2.5%, well below July’s increase of 2.9% and its lowest level since early 2021.

Worries over an economic slowdown appeared to weigh on sentiment as the S&P 500 recorded its worst weekly performance since March 2023 . Tech shares led the declines, driven in part by a drop in NVIDIA following rumors that it may be the subject of a Justice Department antitrust investigation, which led to a roughly USD 300 billion drop in the chip giant’s market capitalization. Energy shares were also especially weak on the back of a decline in oil prices. Conversely, the typically defensive utilities, consumer staples, and real estate sectors held up better. US economic data generally surprised on the downside, raising fears that the Federal Reserve had waited too long to ease monetary policy.

August was a volatile month with US equities pulling back at the start the month before rallying back to unchanged. Last week, the main US equity indices ended mixed. Trading was light ahead of the US holiday weekend (Labor Day). The Nasdaq Composite fared the worst, dragged lower in part by chip giant NVIDIA, which lost nearly 10% of its value, at the stock’s low point on Thursday. Relatedly, value stocks outperformed growth shares by the largest margin since late July. The US core personal consumption expenditures (PCE) price index showed prices rising by 0.2% in July, largely as expected. This seemed to please investors as it is a confirmation that inflation was remaining subdued and near the Fed’s target.

The Dow Jones and S&P 500 Index moved back toward record highs this week, as investors appeared to celebrate Fed Powell’s announcement at Jackson Hall that interest rate cuts would soon be coming. The gains were also broad-based, with small-caps outperforming large-caps and an equal-weighted version of the S&P 500 Index outpacing its capitalization-weighted counterpart. However, trading activity was exceptionally light through most of the week. On Friday, stocks jumped at the open of trading following the release of the text of Powell's speech at Jackson Hole, in which he acknowledged that “the time has come for policy to adjust”—implying that policymakers would cut rates in September. Moreover, Powell appeared to leave room for a cut of 50 basis (instead of 25 basis points).

US equities recorded their best week since 2023, led by a 5%-plus surge in the Nasdaq (which is up 12% from last Monday's lows). Investors appeared to celebrate positive news on both the inflation and growth fronts, which are bolstering hopes that the economy might achieve a “soft landing.” AI chip giant NVIDIA was especially strong, gaining 19% over the week. Growth stocks handily outpaced value shares. Small Caps were lifted by an ongoing short-squeeze. Official economic data suggested that the consumer was holding strong in the face of the cooling labor market. On Thursday, the Commerce Department reported that retail sales surged 1.0% in July, their best showing in 18 months. Consumer price index (CPI) inflation, reported Wednesday, was in line with expectations but also seemed to reassure investors, as the yoy increase in CPI fell below 3.0% for the first time in three years. The US 10-year Treasury yield decreased through most of the week on the benign inflation data but jumped on Thursday following the strong retail sales data. Credit markets rallied hard this week, adjusting back from "hard landing" to "soft landing" scenarios.

The major US equity indexes closed modestly lower for the week after recovering from the biggest sell-off in nearly two years. The S&P 500 Index neared correction territory (down over 10% from its peak) on Monday morning while the Nasdaq was down 15.8% from its peak. Even more pronounced were the swings in the CBOE Volatility Index (VIX) – the fear gauge - which briefly spiked Monday to 65.7, its highest level since late March 2020, before falling back to end the week at 20.6. A recent increase in Japanese short-term interest rates, albeit modest, seemed to result in a partial unwind in the so-called carry trade. A sharp rise in the yen over the preceding few weeks made the trade unprofitable, causing many investors to pull out of their positions. On the macro side, several major companies reported signs of weakening consumer demand during earnings calls.

The major US equities benchmarks closed lower, as investors reacted to the busiest week of the quarterly earnings reporting season and disappointing monthly economic data. Furthermore, the BOJ’s decision to hike rates and turn hawkish after nearly 18 years stunned investors and led to a massive short squeeze. The recent rotation toward value stocks and small-caps stalled, at least in part, as the small-cap Russell 2000 Index pulled back sharply at the end of the week, recording its worst week since March 2023. However, an equal-weighted version of the S&P 500 Index held up better than its market-weighted counterpart, suggesting that the market’s performance continued to broaden away from the so-called Magnificent Seven and other Tech mega-caps.

US stocks recorded mixed returns for the 2nd consecutive week, with small-cap and value shares continuing to outperform large-cap growth stocks that have led the market over much of the year. Indeed, at the close of trading on Thursday, the Nasdaq 100 Index was lagging the broader S&P 500 and barely outperforming the small-cap Russell 2000 Index for the year to date, before large-cap growth shares rebounded to close the week. The week was also notable for the S&P 500 selling off on Wednesday by more than 2% for the first time since February 2023, while the Nasdaq suffered its worst loss since October 2022. micro seemed to take precedence over the macro for much of the week, as investors absorbed one of the busiest weeks of the earnings reporting season.

Stocks were volatile this week with continued rotation in market leadership to small-cap and value shares. U.S. markets initially rallied to new-highs but faded toward week's end, led by weakness in the tech sector. The S&P 500 and Nasdaq closed lower on the week, while the Dow posted a solid gain. Value stocks outpaced growth stocks by 477 basis, as measured by Russell indexes—the largest divergence since March 2023. The week was also notable for a widespread global disruption to computer systems early Friday due to an error in a vendor’s security update to some users of the Microsoft operating system.