Weekly Recap:

by Eric Criscuolo

Published on 08/22/25

Last week we noted rotational flows that were occurring in the equity markets. While the S&P 500 hit another all-time high, it was the small-cap Russell 2000 that outperformed, besting the S&P by ~200bp. The performance of the S&P equal-weight, which doubled the regular index's weekly gain, further highlighted the shift. Healthcare, a lagging sector this year, was the best performer, while cyclical sectors like Materials, Financials and Consumer Discretionary were also towards the top of the leader board while Tech lagged.   

This week started not with rotational flows but geopolitical ones. President Trump met with Ukraine President Zelensky and several other European leaders at the White House, following up on his meeting last Friday with Russian President Putin. It was a major event, but it had more impact on history books than financial ledgers. The S&P 500 traded in a 17-point range on Monday, the smallest intraday range we’ve seen this year. On the charts, it looks like markets were closed. More international news came later in the week when the US and EU released a joint statement adding more details to the trade framework from last month. The 27.5% tariffs on EU autos will remain until the EU introduces legislation to reduce tariffs on a variety of US agriculture. The auto tariffs will then drop to 15%, with most other EU goods exported to the US also tariffed at that level- including pharmaceuticals. Tariffs on steel, aluminum and products made from them will continue to be 50%, however.  

The action picked up the next day, when the rotation dynamic we saw last week re-engaged. Tech and mega-caps stocks came under pressure. Major AI names traded down sharply. Stocks on the Growth and the Momentum side of things sold off. Crypto-related equities came under significant pressure across-the-board. Investors rotated out of year-to-date leaders and into the year-to-date laggards. The S&P ended the day down 0.6% but the equal-weight was basically the mirror-image gaining 0.5%. Strength in freight/logistics, homebuilders and retail came at the expense of mega caps and Tech.    

The minutes from the latest FOMC meeting were released on Wednesday and were a highly anticipated appetizer before Powell’s speech on Friday. Remember though that the meeting happened right before the July jobs report came out, which included big negative revisions and led to a steep repricing of September rate cut expectations, as well as to President Trump firing the head of the BLS. The minutes showed broad support for holding rates steady at the July meeting, outside of the two dissentions from Fed Governor Waller and Vice Chair Bowman. However, "some emphasized that a great deal could be learned in coming months from incoming data" about the balance of risks. That learning experience could have kicked off with the jobs revisions that followed and influenced the main course, Powell's commentary, on Friday.    

It was that commentary, discussed below, that triggered a sharp rally in stocks on Friday. The S&P 500 rocketed higher, adding 1.5% to pull the index back into the green for the week. The equal-weight  fared better, rising 2.0% on the day. However it was the small caps and the Russell 2000 that led the way, jumping almost 4% on the day. Sector-wise, Consumer Discretionary led Friday's rally. Travel and Leisure names were especially strong, homebuilders rallied on the drop in yields and retail jumped as well. For the week, the S&P ended modestly higher while the equal-weight and Russell 2000 outperformed.  

Overall, Energy led for the week as crude gained. Real Estate (broad gains), Materials (chemicals and packaging) and Financials (banks, insurance) were also near the top. Regional and mega banks had similar gains. The crypto-focused equities- digital asset treasuries, services/exchanges and miners all shot higher on Friday in a reversal of the sell-off Tuesday.

Info Tech was the laggard on the week and would have been down closer to 3% without Friday's gains. Major semi names like Nvidia, AMD, Broadcom and Micron all were down. Software was mixed. Comm Services also lagged, dragged lower by Meta (Texas AG investigated AI usage, news around AI hiring freeze) and Netflix down 3-4%     

 

We've been waiting on Chair Powell's Jackson Hole speech for weeks, and the build-up increased after the jobs report. After that report, expectations for a September rate cute jumped from ~60% to over 90% as downside risks to employment shot ahead of upside inflation risks. However, those expectations moderated a bit, down to around 75% heading into the event. Hawkish Fed Officials like Schmid and Hammack outlined their hesitancy to cut, weekly claims data was more-or-less on trend and other data points like the PPI and earnings commentary were showing that tariffs were having an increasing effect on prices.       

With that as backdrop, Powell didn't bury the lede in his speech and made the doves happy right out of the gate, leading off with "...the balance of risks appears to be shifting," and cited the July employment report's slowdown that was "much larger than assessed just a month ago," as well as saying the "...situation suggests that downside risks to employment are rising." In addition, while "the effects of tariffs on consumer prices are now clearly visible", "a reasonable base case is that the effects will be relatively short lived." The door for a September rate cut swung open and equity markets celebrated by ripping higher. Odds of a Sept cut are back up to ~85%, interestingly a little below their highs a couple weeks ago.

However, just because it's open doesn't mean the FOMC will walk through it. Recent price data has come in hot. There are still hawkish committee members as noted above and we're still looking at a lot of important data coming down the pipe before the next decision September 17, including July PCE and August CPI, PPI and the jobs report. If inflation ignites in these reports, we could reverse all of this. To that end, Powell maintained a generally cautious outlook, commenting how its entirely possible tariffs cause a more lasting effect and reiterating that "we will not allow a one-time increase in the price level to become an ongoing inflation problem."

I know I just wrote three paragraphs on it, but I can't help but feel that this event was a little over-emphasized. Pieces were already being put in place for a cut, or at least for the FOMC to be open to one. In addition, the market was already leaning hard into a cut (as exemplified by the 70-100% recent odds). As much as I would have loved Powell to step up and just say, "We're not cutting", mic drop, and walk off stage, that wasn't happening. The fact the market went very risk-on after he leaned ever so dovish, in line with what the market was pricing in, seemed a bit extreme. Looking out to December (table below), right now we're just back to where we were a week ago. In the end though, the S&P finished the week about flat, so maybe this was just the market getting back its equilibrium as it dealt with those rotational flows.     

Besides central banker speeches, this week was filled with consumer/retail-focused earnings, and overall the results were fine though several companies saw shares decline even if numbers were ahead of estimates. Overall there were no major surprises and results didn’t shift the narrative of pressure on the consumer and general uncertainty. Many of the larger moves were due to company-specific reasons.

But to the inflation discussion above, several high-profile companies said that tariffs are putting upward pressure on prices. This includes retail giant (and cost setter) Walmart. Management noted how inventory prices are rising each week as stock is replenished and that is expected to continue. This is likely a wide-spread dynamic and underscores how the impact of tariffs could continue to evolve for a lot longer than some expect.  

2-5yr yields fell 10bp Friday following Powell's speech as dovish expectations were priced back into the market. The 10yr fell 6bp and 30yr fell 3bp. That move essentially reverses the recent creep higher in yields and puts the 2yr back to 3.70%, where it was right after the jobs "revision-gate".      

The ICE Move Index, a read on treasury market volatility, has fallen to ~78, its lowest level since December 2021. The chart plots the S&P 500 versus the MOVE (inverted).     

The macro data was pretty light this week. The biggest release were the flash PMIs. For the US, manufacturing and service sectors were at healthy levels. Manufacturing improved, rising from 49.8 to 53.3. Services PMI of 55.4 was also strong and ticked down only slightly from 55.7. Overall business activity grew at the fastest rate of the year. The report noted that “Companies across both manufacturing and services are reporting stronger demand conditions, but are struggling to meet sales growth, causing backlogs of work to rise…” Interestingly, job creation reached one of the best paces in three years, but this narrative diverges with the continuing claims data. The report also pushed the view that tariffs are starting to have more of an effect on inflation. Average prices charged for goods and services rose at the sharpest rate since August 2022.

While the PMI reported increasing job creation, weekly jobless claims continued to show a job market where layoffs are relatively low but companies are not adding payroll. Initial claims rose from 224K to 235K, having increased from their recent lows of 214K a month ago but remain below the recent peak and along trend. Continuing claims meanwhile rose from 1942K (revised lower) to 1972K, reaching their highest level in four years. 

Housing Starts came in better than expected and up from June, with multi-family driving the growth (+27% y.y) though single-family also grew (8%). However, Building Permits fell and missed estimates, keeping sentiment contained. Single-family fell 8% while multi-family fell 2%. Existing Home sales surprised to the upside, growing 2% m.m and 0.8% y.y.

The Philly Fed index declined in the latest report, from 15.9 to -0.3. Future expectations rose however, from 21.5 to 25.0. For current conditions, New orders and Shipments declined while and Prices Paid and Received rose. For future expectations, New Orders and Shipments rose while Prices Paid and Received declined.

It's time to kick-off College Football!!! It's also be the last week before we move into September, which is historically the worst month for equities. The July PCE reading will be the key piece of economic data in the US, as it’s the Fed’s preferred inflation gauge, and will provide an important follow-up to Powell’s comments. Nvidia will report earnings, providing a vital update on the AI trade, which is impacting not only Tech but Energy, Utility and Industrial sectors too. Regional Fed surveys will be released and we'll start to move into sell-side conference season. MSCI will also update its indexes.

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