In this week’s 7 Market Movers, Deputy Chief Investment Officer Doug Huber details how Federal Reserve Chair Jerome Powell’s openness to a September rate cut energized markets, sending equities higher. The Bureau of Economic Analysis also revised Q2 GDP growth upward to 3.3%, fueled by stronger consumer spending. Earnings from companies like Nvidia, JPMorgan, and Boeing further supported gains, with both tech and value stocks showing strength. Doug also touches on a few risks in the market that the Investment Management team continues to monitor, namely a weakening labor market, inflation, and tariffs. 

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TRANSCRIPT:

Hello, everyone, and welcome to this week's Wealth Enhancement 7 Market Movers weekly market briefing. My name's Doug Huber. I'm the Deputy Chief Investment Officer here at Wealth Enhancement, and let's dive into this week's key forces, from Fed pivots and GDP revisions, to tariffs and earnings announcements, all shaping the US equity and rate markets. The week kick kicked off with a notable shift in tone from Fed chair Jerome Powell at the Jackson Hole Summit.

First time he was signaling an openness to a potential rate cut as soon as September if the labor market continues to weaken. This was widely well received by US equity markets, sparking a surge in equities and then also driving the rate cut probabilities for September up to 85%. These were much lower earlier in the year. So the markets are now really pricing in that we will see at least one 25-basis point cut from the Fed at the next September meeting. Fact of the matter though is there's still lingering political interference as the administration has looked to oust governor Lisa Cook. And this has put the market a little bit on its back foot as it's worried about where the interference of the administration with monetary policy will follow going forward.

On brighter news, we saw the Bureau of Economic Analysis, the BEA, revised their Q2 GDP print. So GDP is how we're growing here from an economic standpoint. That was originally for Q2, projected to be 3%. We've actually revised up to 3.3%, beating expectations, thanks to a, stronger consumer spending and investment. This is a big one. You know, we've talked about it a lot on this that we really are watching the health of the US consumer. It has really been the engine that has continued this economic cycle on as long as it has gone on, and so it's good to see that consumer spending was actually a surprise to the upside.

The markets have responded again, cautiously rallying this week. I think the S&P 500 is up roughly 0.5% through end of day here on Thursday. Tech focused equities up a little bit more, and we'll touch on that in a little bit.

But the strength of that is really from kind of this one-off adjustments in in amid these import shifts in the GDP number. And so we're trying to determine is this a one-time thing, or is there some durable momentum here, to this this growth that we're seeing in the in the in the economy.

On the tariff front, tariff pressure certainly seemed to intensify on a broad scale as the US broadened its 50% steel and aluminum tariffs to encompass another 400+ products, including furniture and construction goods. The good news, though, is that Canada modified its retaliatory tariffs to mirror those of the US under the USMCA.

And so, hopefully, that, will actually ease trade frictions, coming across the border to our north, and that can be helpful, to maybe bring down some of the pricing as Canada is a big trading partner for us. On the equity side, we did see big week for earnings. Nvidia reported, JPMorgan, Boeing, others. You know, it's been a strong, strong week in the market.

It's certainly tech and AI oriented stocks that are driving the headlines. But if you look under the hood, we are seeing some value or value-oriented names in cyclical sectors also gaining some ground this week. And so, what that means to us is we're seeing a market that has some broadening going on. And typically in these late summer months, we don't see as much volume, but it does appear participants are in the markets and certainly being kind of, selective of where they're placing their bets. And so that's actually a really good sign that we're seeing broadening in the marketplace.

Finally, as it relates to some other markets we're looking at, you know, rates have been roughly stable this week. We saw a little bit of a steepening in the curve as the front end, which is what the Fed has some control over, dropped on those increased expectations, that the Fed will drop rates in September. The long end has stayed roughly stable, and so you'll see what we call a steepening of the curve as kind of the front end came down a little bit. Outside of that, the dollar has been remarkably stable this week.

We saw it, you know, go up a little bit. It's up roughly 0.2% on the week as I think these positive growth, dynamics have come forth. You're seeing good earnings out of US-oriented companies. And so dollar has gained a little bit this week, certainly off the lows we saw earlier this year.

So all positive in in that regard. I think what are we watching? Right? We always talk about that. What are things in front of us here? I think labor market continues to show some strain. We did see jobless claims rise to 235,000 dollars, and so 235,000 thousand dollars excuse me, 235,000.

And so I think that is raising some concerns about the resilience of the labor market. That being said, you know, unemployment has continued to hover in the low 4%, which is a very healthy level, especially back with the growth we're seeing in the economy.

Businesses still appear to be continuing to pass those tariff costs to the consumer, which, you know, is that pressing on inflationary pressure? We will see. I think the big question is is that inflationary pressure a one time thing, or do we expect that to be, more, longer lived? And so we're keeping an eye on that.

Looking ahead, we have some big data announcements coming through. We have the PCE inflation reports, which we will see at the end of this week. And so there will be some data in there about exactly how much of the inflation is coming into the consumer flags. We also have the August job numbers, coming soon, and so those will all be important to keep an eye on as we look at both, the Fed's dual mandate of inflation and job growth.

And so those are two things we obviously pay a lot of attention to as well. I think in summary this week, you know, it's been a positive week for most markets. They're certainly riding a wave of enthusiasm this week, certainly, you know, really on the back of Fed dovishness and this upside GDP surprise. But there's continued political turmoil. We know that. There's tariff escalations. There those come on and off and labor softness certainly are all things that could pose a little bit of a risk. And so with that, I hope everybody has a great Labor Day weekend.

We'll be back next week to tell you more and and give you updates of all the new data we have coming through. Thank you very much. Bye bye.

This information is not intended as a recommendation. The opinions are subject to change at any time and no forecasts can be guaranteed. Investment decisions should always be made based on an investor's specific circumstances. Investing involves risk, including possible loss of principal.

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