Market Moves: Equities Rally, Dow Hits Record High

After a week marked by uncertainty, U.S. stocks rebounded sharply on Friday. The Dow Jones Industrial Average climbed 1.6% for the week, closing at 45,631.7 and hitting its first record high of 2025. The S&P 500 eked out a small gain, up 0.3% for the week at 6,466.9, while the tech-heavy NASDAQ retreated slightly, down 0.6% to 21,496.5. The rally capped a five-session losing streak for the S&P 500, providing relief for investors rattled by volatile macro indicators and central bank speculation.

Value stocks led the recovery, outpacing growth stocks for the second consecutive week. Large-cap value indices advanced by 1.8%, notably outperforming growth benchmarks, which slid 0.8%. This rotation reflects renewed investor appetite for sectors less sensitive to interest rate changes, especially as the market digests the latest Federal Reserve signals.

Fed Watch: Rate Cut Odds Increase Following Jackson Hole

Anticipation for U.S. Federal Reserve policy took center stage at the annual Jackson Hole Economic Symposium, where Fed Chair Jerome Powell hinted at a possible September rate cut. Powell cited a “shifting balance of risks” and recent softness in the labor market as key factors. The remarks boosted market sentiment and altered investor expectations.

According to CME Group’s FedWatch tool, traders as of Friday priced in an 83.1% probability that the Fed will reduce its benchmark rate by 25 basis points at its September 16–17 meeting. U.S. Treasury yields reacted immediately. The 2-year Treasury yield dropped to 3.69% from 3.79% the prior day, while the 10-year yield ended the week at 4.26%, both reflecting growing consensus for incremental Fed easing. Traders and analysts are watching upcoming Personal Consumption Expenditures (PCE) Index data—due August 29—closely, as PCE inflation last printed at a four-month high of 2.6%, with core inflation at 2.8%.

Economic Data: Housing, Jobs, and Inflation in Focus

The U.S. housing market showed surprising strength. Existing home sales in July increased by 2.0% from the previous month, outperforming economists’ expectations. The National Association of Realtors noted that the median sales price rose year-over-year, although it remained below June’s 2025 peak. Moderation in mortgage rates provided important support to buyers, and new home sale data ahead is expected to further clarify the market’s trajectory.

In labor, recent data reveals continued, though modest, job growth. Total nonfarm employment stands robust, with mild signs of deceleration suggesting the Fed’s higher-for-longer policy may be taking effect. Meanwhile, consumer price inflation continues to normalize, providing a backdrop for potential policy shifts. The Consumer Price Index (CPI) remains in the 3%–4% range annually, according to the U.S. Bureau of Labor Statistics, a marked improvement from the post-pandemic highs topping 9% in 2022.

International Markets: Flows and Trade Developments

International equity markets also registered mixed results. The MSCI EAFE index gained 0.8% for the week and is up an impressive 25.1% year-to-date. European indices like Germany (+0.2% weekly, +37.1% YTD) and Italy (+1.5% weekly, +49.5% YTD) continue to see inflows, with Spain (+0.8% weekly, +60.5% YTD) outperforming all major global peers. Japan lagged with a 0.6% weekly loss, reflecting a pause after strong year-to-date gains.

On the policy front, the Canadian government announced it will remove several retaliatory tariffs against the U.S., though 25% duties on autos, steel, and aluminum remain. Ongoing trade talks highlight sensitivities in cross-border supply chains. In major emerging markets, China and Brazil delivered weekly gains, while South Korea and Taiwan slid amid global tech headwinds.

Sectors and Styles: Rotations Accelerate

Within U.S. sectors, energy (+3.1%), financials (+2.2%), materials (+2.1%), and real estate (+2.5%) outperformed, capturing investor preference for cyclical and inflation-sensitive industries. Technology softened, with information technology stocks down 1.6% on the week. Defensive sectors—including healthcare (+1.5%) and utilities (+0.5%)—benefitted from cautious capital rotation as investors positioned portfolios ahead of September’s crucial Fed meeting.

On a year-to-date basis, growth stocks and technology have led, but their advantage is shrinking as value strategies regain traction amid interest rate speculation and earnings season volatility.

Fixed Income: Yields Slip as Bonds Rally

Investors saw renewed interest in fixed income as bond prices edged higher on Fed expectations. The Bloomberg Aggregate Bond Index rose 0.4% for the week. Key sectors such as investment-grade corporate bonds (+0.4%), convertible bonds (+0.6%), and TIPS (+0.8%) all posted solid gains. Global bonds tracked modest advances, with emerging market local debt up 0.2% on the week and 17.0% year-to-date.

The U.S. yield curve remains relatively flat, with the 2- to 10-year spread at 56 basis points and the 10- to 30-year spread at 62 bps. Investors are weighing the prospects of a steeper curve post-rate cut, which traditionally signals confidence in economic expansion ahead.

Commodities and Currency: Oil, Gold Surge

Commodities posted a robust week. WTI crude oil surged 2.9%, reversing some recent declines. Gold advanced 1.1% and is up a strong 27.2% for the year, as investors continue to seek inflation hedges. The Bloomberg Commodity Index marked a 1.3% weekly gain (+5.8% YTD).

Currency markets showed subtle moves: the euro (+0.1% weekly) and Swiss franc (+0.5%) strengthened, while the Australian dollar and British pound slipped. The dollar index remains relatively stable as investors monitor global central bank divergence.

Fund Flows: Investors Reallocate, Fixed Income in Demand

The latest industry data reveal shifting investor appetites. Open-end funds and ETFs have seen $31.2 billion in net inflows for July, boosted by strong demand for taxable bonds (+$54.9B) and alternatives (+$12.9B). Equities saw some outflows, especially in Mid-Cap and Small-Cap Blend categories, while Digital Assets and Intermediate Core Bonds drew significant interest.

Leading fund categories by inflow include Intermediate Core Bond (+$19.6B), Digital Assets (+$11.4B), and Ultrashort Bond (+$7.9B). Conversely, strategies focused on Mid-Cap Blend (-$37.5B) and Large Growth (-$8.6B) struggled to attract capital, as investors shun riskier and rate-sensitive exposures.

The Week Ahead: Data to Watch

• Monday: U.S. New Home Sales
• Tuesday: S&P/Case-Shiller 20-City Home Index, Durable Goods Orders
• Thursday: Q2 GDP (second estimate), Pending Home Sales, Weekly Jobless Claims
• Friday: PCE Price Index, University of Michigan Sentiment Survey

With a pivotal Fed meeting in September and fresh inflation data on deck, U.S. and global markets are poised for continued volatility and opportunity as investors recalibrate portfolios to the new macroeconomic reality.

Conclusion: Navigating Uncertainty with Data and Discipline

This week’s rally highlights the interconnectedness of central bank communications, economic data, and global capital flows. As the U.S. edges closer to a potential easing cycle, market participants should remain vigilant, diversified, and data-driven to capture opportunity while managing risk in dynamic markets.

Stay tuned for next week’s recap and subscribe to receive timely insight on market shifts, data releases, and strategy updates from leading analysts at Manulife John Hancock Investments.