Weekly Market Recap: Fed Rate-Cut Bets Stir Markets as Equities Hold Gains

Market Overview

U.S. equities finished higher on the week, led by the Dow and small-cap Russell 2000, while the S&P 500 (up 1.0%) logged another record close despite volatile inflation headlines. Health Care (+4.6%) and Consumer Discretionary (+2.5%) outperformed, while Utilities (-0.7%) and Consumer Staples (-0.7%) lagged. Treasury yields whipsawed, with the 10-year ending four basis points higher as rate-cut expectations shifted throughout the week. Overseas, Japan led international gains as both the Nikkei and Topix hit record highs, while European markets advanced on steady economic data despite U.K. weakness tied to slowing growth. Commodities softened, with WTI crude oil sliding and gold pressured by risk-on sentiment. The U.S. dollar weakened, while the yen strengthened on strong economic growth.

Federal Reserve Insights and Economic Roundup

Rate-Cut Bets in Focus – July’s consumer inflation data sparked optimism for a September Fed rate cut, but a hotter-than-expected wholesale inflation print tempered enthusiasm midweek. Despite elevated core inflation (3.1% vs. 2.9% prior), markets continue to price in easing as labor market and consumer sentiment data show cracks.

Consumer Trends – Retail sales rose 3.9% year-over-year, with the GDP-tracking control group up 0.5%. Auto sales showed partial recovery, while restaurant spending slipped 0.4%. Clothing sales gained strongly, aided by tariff-driven shifts. Overall, discretionary spending looks mixed, but recession risk remains contained.

Stagflation-lite Concerns – Inflation pressures from shelter, medical care, and used cars are colliding with slowing growth, raising stagflation-lite risks. Even so, Fed officials are expected to maintain a dovish tilt heading into next month’s meeting.

The Week Ahead

Monday – New York Fed Services Business Activity (Aug), NAHB Housing Market Index (Aug)

Tuesday – Housing Starts (Jul), Building Permits (Jul preliminary)

Wednesday – MBA Mortgage Applications (Aug 15), FOMC Meeting Minutes (Jul 30)

Thursday – Initial Jobless Claims (Aug 16), Continuing Claims (Aug 9), Philadelphia Fed Business Outlook (Aug), S&P Global Manufacturing, Services, Composite PMI (Aug preliminary), Leading Index (Jul), Existing Home Sales (Jul)

Friday – No major releases scheduled