WEEKLY MARKET SUMMARY
Global Equities: Major US stock indices set new record highs this week, once again led by large cap technology stocks. The S&P 500 ended 1.3% higher, the Dow Jones Industrial Average advanced 1.1%, and the Nasdaq Composite led the way with a 2.2% gain. Small Caps, which are more sensitive to interest rates, got a jolt from the Fed’s first rate cut of 2025 and finished the week 2.2% higher. Developed market international stocks underperformed, ending the week flat, while Emerging markets gained 1.4%.
Fixed Income: The Fed issued a widely expected rate cut, but bond investors gave the central bank action a cold reception as the long end of the yield curve rose. The 10-Year US Treasury yield surged to 4.14% and the yield on 30-Year Treasury Bond hit 4.76%. Corporate bond issuers were more enthusiastic about the cut, issuing over $15 billion in investment grade bonds immediately after the announcement.
Commodities: US West Texas Intermediate crude oil prices were relatively unchanged, ending the week at $62.91 a barrel. Gold prices took a breather from their recent surge, ending the week only modestly higher at $3,702/oz.
WEEKLY ECONOMIC SUMMARY
Fed Cuts: The Fed issued a quarter-point rate cut, as expected, to bring the Fed Funds rate to 4.0-4.25%. In his remarks, Chairman Jerome Powell stated there was “little support” for a larger, 50 basis point cut, while justifying the decision to act as based on “downside risks to employment.” Powell acknowledged that the Fed is currently facing threats on both ends of its dual mandate for managing employment and inflation, while not directly using the “stagflation” term. The newly appointed interim Fed member Stephen Miran was a notable outlier at his first FOMC meeting, calling for a 2.75-3.0% year end rate, equivalent to five quarter-point cuts.
Mixed Manufacturing Data: Two regional reports on manufacturing activity painted a divergent picture this week, adding to the uncertainty over the current health of the economy. First, the New York area Empire State Manufacturing Index fell sharply to -8.7, indicating contraction and revealing a deep decline in new orders and shipments, as well as a pause in hiring. Later in the week, the Philadelphia Fed Manufacturing Index was reported at 23.2, up from August’s -0.3 reading. The divergent readings are not completely uncommon and highlight the challenges facing the Fed as it attempts to balance the risks of rising unemployment and higher inflation.
Housing Market Weakness: Potential homebuyers looking for lower mortgage rates and homeowners seeking to refinance their loans got a little relief as the average 30-year fixed rate mortgage rate declined to around 6.3%, the lowest level in nearly a year. Housing inflation has been persistently stubborn, and there are vast regional disparities, but there are some signs of softening prices, particularly in the South and West. The total inventory of homes for sale has been increasing for 97 consecutive weeks, and is at its highest level post-pandemic, suggesting home prices should eventually decline.
CHART OF THE WEEK
The Chart of the Week is the Fed’s Summary of Economic Projections, also known as the “Dot Plot”, the September 2025 meeting. The median forecast for 2025 shows the Fed expects two more cuts during the year, although there is enough dissent for that to change subject to inflation reports. Looking ahead to 2026 shows the Fed anticipates inflation will remain a challenge next year, with a median forecast implying just one rate cut in 2026. There will likely be some contentious Fed meetings in the coming months as the central bank grapples with the prospect of stagflation.
