Weekly Market Recap: Mixed Equities, Bond Yields Rise as Fed Signals Easing Cycle

Market Overview

U.S. and international equities experienced a mixed week, with the S&P 500 ending up 0.24% and the Dow up 0.94%, while the Nasdaq was down .92%. European markets performed better, with the STOXX 600 index adding 1.34%, buoyed by signs of easing inflation and potential rate cuts from the European Central Bank (ECB) and Bank of England (BOE). In Asia, Japan rebounded to weekly and monthly highs despite economic challenges, while China ended slightly lower due to corporate concerns. Indian markets extended a record-winning streak, while Hong Kong gained over 2%. 

In the bond market, yields rose as economic data suggested a soft landing, with the 10-year Treasury yield climbing ten basis points. The yield curve, still inverted, showed signs of returning to a more traditional upward slope as expectations grew for the Federal Reserve to initiate an easing cycle in September. 

Commodities saw modest declines, with West Texas Intermediate (WTI) crude dropping 1.43% amid reports of OPEC+ unwinding output cuts. The U.S. dollar strengthened on positive economic data, while gold and silver also saw declines due to a stronger dollar and persistent inflation concerns. 

Federal Reserve Insights and Economic Roundup

The Federal Reserve’s recent signals have fueled expectations of a potential easing cycle beginning in September. Despite a dovish tone from the Jackson Hole Symposium, key economic data points, including a softer-than-expected core Personal Consumption Expenditures (PCE) and upward revisions to Q2 GDP, have strengthened the case for a soft landing. Real disposable incomes rose for the third consecutive month, further reducing recession risks and supporting consumer spending. The Fed’s preferred inflation metric showed signs of cooling, which, coupled with a revised Q2 consumer spending increase to 2.9%, supports the narrative of a resilient economy. 

The Week Ahead

The upcoming week is packed with significant economic data releases. Key reports include the ISM Manufacturing Index, Trade Balance, and Factory Orders on Tuesday and Wednesday. Labor market data will be in focus, with the Challenger Job Cuts report, ADP Employment Change, and weekly jobless claims on Thursday, followed by the highly anticipated Nonfarm Payrolls and Unemployment Rate on Friday. The Federal Reserve will also release its Beige Book on Wednesday, offering further insights into economic conditions across the country.