Momentum Shift in U.S. Equities

The major U.S. stock indices—S&P 500, NASDAQ, and Dow Jones Industrial Average—opened the week at all-time highs, before retracing and ending the week fractionally lower. This marks only the second decline out of the past eight weeks for the S&P 500, highlighting the persistent strength that has characterized U.S. equity markets throughout much of 2025. On Friday, the S&P 500 closed at 6,643.7, down 0.3% for the week but still up an impressive 14.1% year-to-date (YTD). The NASDAQ fell 0.6% weekly but remains the best performer YTD with a 17.0% gain. The Dow ended slightly lower by 0.1%, maintaining a double-digit gain for the year at 10.1%.

This week’s pullback came after a period of relentless upward movement, with investors taking profit amid jitters around inflation data and looming fiscal deadlines.

Inflation Remains Sticky

The U.S. Federal Reserve’s favored inflation gauge, the Personal Consumption Expenditures (PCE) Index, continued its incremental ascent, rising at a 2.7% annual rate in August—slightly above July’s 2.6% and the highest reading in six months. Core PCE, which strips out volatile food and energy prices, came in at 2.9%, aligning with most economist forecasts. This trend underscores the challenge monetary policymakers face in steering inflation toward their 2% target.

Consumer prices, labor costs, and continuing price increases in shelter and services remain persistent contributors to inflation. The Federal Open Market Committee (FOMC) meeting in September reflected a cautious stance: while no rate hikes were implemented, policymakers indicated that further rate hikes remain on the table, should inflation pressure persist into the final quarter of 2025.

Budget Showdown Risks Partial U.S. Government Shutdown

With the fiscal year ending October 1, Congress has yet to agree on a funding extension, raising the specter of a partial government shutdown. Despite the Republican-majority House and Senate, bipartisan cooperation is needed to pass a continuing resolution. Sticking points include defense spending, aid packages, and allocations for social programs. As of Friday, negotiations remained deadlocked, leaving markets apprehensive about potential economic disruption in early October.

Economic Growth Revised Upward

In positive news, the U.S. Bureau of Economic Analysis revised second-quarter GDP upward to a 3.8% annualized rate, up from previous estimates of 3.3% and 3.0%. This robust reading supports the narrative of a resilient American economy, bouncing back from a minor contraction in early 2024. Consumer spending—propped up by ongoing employment strength and wage growth—remains a key driver.

However, there are concerns over a cooling labor market: in August, the U.S. added only 22,000 jobs, far below recent averages, and the unemployment rate ticked up to 4.3%, its highest since 2021. The upcoming September jobs report will be closely watched by investors and economists for further signs of momentum or decline.

Commodities Soar: Oil and Gold Rally

Commodities enjoyed another strong week. Gold futures hit a new record high, surpassing $3,800/oz for the first time and marking their sixth consecutive weekly gain. In just over a month, gold prices have surged roughly 14%. This resurgence in the yellow metal is being driven by renewed safe-haven demand amid geopolitical uncertainty, coupled with central banks around the globe adding to their gold reserves, as seen in recent World Gold Council data. Gold is up more than 40% YTD.

Oil prices also surged, with West Texas Intermediate (WTI) crude rising over 5% to nearly $66 per barrel, its largest weekly gain in three months. The rally is underpinned by robust demand, tighter OPEC+ supply discipline, and recent inventory drawdowns in the U.S. EIA data also showed continued strength in global demand despite concerns over Chinese economic growth. Year-to-date, WTI crude is up nearly 3%; over the past two months, it has again traded above $65/barrel, after previously fluctuating between $62 and $65.

Global Markets: Mixed Trends

Globally, developed-market equities performed slightly below U.S. indices. The MSCI EAFE index fell 0.4% for the week but remains up 24.3% YTD, buoyed by strength in major European markets. Japan edged 0.1% higher, while Germany and France slipped 0.2% each, and Switzerland lagged with a 2.1% loss. Southern Europe, particularly Spain and Italy, continues to outperform, with respective YTD returns of 60.3% and 47.0%.

Emerging market performance was weaker, largely on the back of profit-taking and continued uncertainty over Chinese growth. India experienced a steep weekly drop of 3.9%. However, Korea, Brazil, and Mexico remain among the best global performers, each up strongly YTD by 54.2%, 39.0%, and 46.8% respectively.

Sector and Fixed Income Overview

Within the S&P 500, energy (+4.7%), utilities (+2.8%), and real estate (+1.3%) led the week, while communication services (-2.7%) and materials (-2.0%) underperformed. Year-to-date, information technology (+20.7%) and communication services (+25.7%) remain top sectors, fueled by robust corporate earnings and investor enthusiasm for artificial intelligence and digital transformation.

Bond markets were relatively steady. The 2-year U.S. Treasury yield ended the week at 3.64%, down from 4.23% at the end of 2024, while the 10-year finished at 4.18%. The spread between 2-year and 10-year treasuries remained positive at 54 basis points but below long-run averages, reflecting moderate expectations for policy easing in 2026. Aggregate bond returns were marginally negative this week, and YTD most bond categories (especially convertibles and municipals) have delivered positive returns as inflation expectations remain anchored.

Fund Flows and Investor Sentiment

Open-end funds and exchange-traded funds saw net inflows ($68.3 billion for August), driven primarily by taxable bond products (+$64.7B). Commodities and alternatives also posted robust inflows. In contrast, U.S. equity funds saw net outflows (-$14.1B in August), a trend persisting as investors rebalance or seek tactical exposure to non-U.S. and fixed-income assets. Leading fund categories included intermediate core bond, ultrashort and multisector bond, and foreign large blend equity.

Investor sentiment, meanwhile, has deteriorated somewhat. The University of Michigan Consumer Sentiment Index declined to 55.1 in September, falling for a third consecutive month amid concerns over persistent inflation pressures and labor market uncertainty.

Looking Ahead: Economic Calendar & Key Watchpoints

Markets will closely watch the U.S. jobs report for September on Friday for further labor market insights, as well as updates on consumer confidence, factory orders, and the progression of budget negotiations in Congress. Potential volatility remains elevated as investors await clarity on monetary policy, fiscal stability, and global supply chain trends.

• Monday: Pending home sales
• Tuesday: JOLTS report, Case-Shiller Home Price Index, Consumer Confidence
• Wednesday: ADP Employment, ISM manufacturing
• Thursday: Factory orders, weekly jobless claims
• Friday: Nonfarm payrolls/unemployment, ISM services

For deeper market intelligence, analysts recommend tracking weekly capital market reports and central bank communications as the investment landscape evolves into Q4 2025 and beyond.