Market Overview

During the week ended August 29, 2025, major U.S. stock indexes ended marginally lower. Despite midweek gains that briefly pushed the S&P 500 above the 6,500 mark, a pre-holiday slide on Friday saw the broad market index dip just below that important threshold. The Dow Jones Industrial Average finished at 45,544.9, down 0.1% for the week, while the Nasdaq slipped 0.2% to 21,455.6. Year-to-date, however, U.S. equities remain robust, with the S&P 500 posting a 10.8% return and the Nasdaq 11.6%.

This subdued weekly performance followed a string of generally positive economic data, but was overshadowed by growing inflationary pressures and uncertainty regarding the Federal Reserve’s next policy move, as global investors remained cautious heading into the September Fed meeting.

Inflation Watch: Consumer Prices Rise

The Federal Reserve’s preferred inflation measure, the Personal Consumption Expenditures (PCE) Index, signaled an uptick to the highest level in five months. Core PCE—excluding the volatile energy and food categories—rose at an annual rate of 2.9% in July. When including all categories, the annual inflation rate sat at 2.6%. Despite remaining below the historic peaks of 2022, these figures highlight that inflationary pressures have yet to be fully tamed, complicating the central bank’s policy calculus.

Recent Consumer Price Index (CPI) data from the U.S. Bureau of Labor Statistics also showed a year-over-year increase of around 3.1% for July 2025. Although inflation has largely moderated since its post-pandemic spike above 9% in mid-2022, the persistence of price pressures—especially in services and housing—remains a concern for policymakers.

Economic Growth: GDP Upwardly Revised

The U.S. economy’s resilience continues to be a surprising positive. According to the latest revised figures from the U.S. Bureau of Economic Analysis, real Gross Domestic Product (GDP) in the second quarter expanded at a 3.3% annualized rate, up from the earlier 3.0% estimate. This marks a notable rebound from the modest contraction in Q1 2025, and has largely been attributed to a recovery in consumer spending and better-than-expected business investment. However, global trade volatility, heightened by shifting tariffs, continues to cause underlying volatility in the pace of imports and exports.

Commodities Highlight: Gold Reaches Record High

Gold futures prices surged for a second consecutive week, closing at a record $3,518 per ounce on Friday afternoon—up more than 31% year-to-date. The metal’s remarkable 2025 rally is being fueled by a combination of inflation fears, geopolitical uncertainty, and widespread expectations for global central bank easing. Recent inflation data, combined with continued dollar volatility and record inflows into gold ETFs, have made the precious metal a key defensive holding as investors hedge against economic risks.

Federal Reserve: Rate Cut Expectations Firm

Market sentiment has shifted increasingly toward the anticipation of a Federal Reserve rate cut at its upcoming policy meeting concluding September 17. According to the CME FedWatch tool, as of Friday, futures contracts were pricing in an 88.9% probability of a 25 basis point cut. Investors are balancing hopes that a more accommodative stance will support equities, real estate, and other risk assets against concerns that inflation could reignite if policy loosening occurs too quickly.

Fed officials, for their part, have maintained a cautious tone, emphasizing their commitment to a data-dependent approach, with recent commentary suggesting that while a cut is likely, they remain vigilant for any signs of renewed inflation acceleration. The labor market’s trajectory may further influence the Fed’s next steps.

Earnings Season Recap: S&P 500 Delivers Double-Digit Growth

Second-quarter earnings for S&P 500 companies grew by 11.7% year-over-year, according to FactSet. This marks the third straight quarter of double-digit annual growth, though it represents a slight slowdown from the previous quarter’s pace of 12.9%. Notably, communication services led the way with a remarkable 46.0% earnings gain—buoyed by continued momentum in technology, digital advertising, and streaming sectors.

Housing and Labor Markets: Cooling Off

Data released last week underscored growing signs of softness in the U.S. housing market. New home sales fell by 0.6% in July, extending a streak of modest monthly declines attributed largely to affordability pressures from elevated mortgage rates. Meanwhile, home price growth has slowed, and the average 30-year mortgage rate dipped to its lowest in 10 months, offering a sliver of relief to prospective buyers.

In the labor market, investors are eyeing the next non-farm payrolls report after July’s print showed a net gain of just 73,000 jobs, with previous months’ estimates revised down by a combined 258,000 positions. As a result, monthly jobs totals for April and May were among the weakest of the cycle. Analysts and Federal Reserve officials alike are monitoring for signs that a cooling labor market could precede broader economic deceleration.

Global Markets: Divergent Regional Performance

International market performance was mixed. Developed equity indexes like the MSCI EAFE dropped 1.4% for the week but retained a strong 23.3% year-to-date return. European equities faced steeper declines: Spain (-3.1%), France (-3.5%), and Italy (-2.7%) led regional losses. In contrast, the U.K. managed a smaller weekly drop of 1.5% and remains up 24.7% on the year. Emerging markets also saw divergent trends, with Brazil (+2.6%) and Korea (+0.4%) climbing, while India and Indonesia suffered sharper losses. These shifts were underscored by changing global growth and rate expectations, as well as country-specific factors.

Bond and Currency Markets: Yields Dip on Rate Cut Bets

Bond yields continued to edge lower amid mounting confidence in Fed easing. The U.S. 10-year Treasury closed the week at 4.22%, down 35 basis points year-to-date. The 2-year note retreated to 3.61% from 4.23% at the start of the year. Overall, bond market performance has proved resilient, with the Bloomberg Aggregate Index up 5.0% YTD and high-yield bonds returning 6.2%. Convertible bonds (+12.2%) and TIPS (+6.4%) have been notable standouts.

In the currency arena, the U.S. dollar softened modestly against key developed peers, with the Swiss franc up 13.4% and the euro gaining 13.0% YTD.

Fund Flows: Investors Shift Toward Bonds and Alternatives

Investment flows for July 2025 showed continued rotation, with U.S. equity funds seeing $61.4 billion in outflows for the month, reflecting a trend of profit taking and portfolio rebalancing. Taxable bonds and alternative investments experienced strong inflows, at $54.9 billion and $12.9 billion, respectively, as investors sought safer havens amid rising volatility. The digital assets fund category saw an impressive $11.4 billion inflow in July and $49.8 billion over the past 12 months, as interest in cryptocurrencies and related strategies persists.

Looking Ahead: Key Economic Events

• Monday: U.S. financial markets closed for Labor Day
• Tuesday: U.S. manufacturing data (ISM index), construction spending
• Wednesday: Job openings and factory orders
• Thursday: ADP employment report, productivity, labor costs, weekly jobless claims, non-manufacturing ISM, trade balance
• Friday: Jobs and unemployment data (BLS)

Market participants will be closely watching the labor market and inflation readings for further clues on U.S. growth prospects and the Federal Reserve’s pending actions in September and beyond.

Conclusion

The final week of August provided a snapshot of an economy at a crossroads. Bullish trends in equities, gold, and bonds reveal both optimism and underlying caution, shaped by persistent inflation, uneven labor data, and a high-stakes Federal Reserve decision. As investors digest fresh data and policy signals, vigilance, diversification, and a focus on fundamentals remain essential strategies for navigating the ever-evolving landscape of the global capital markets.