By Jack Kraft, CFA, Vice President, Investment Strategist
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U.S. equities continued their march higher last week, proving once again that it’s tough to “fight the Fed” when the path of least resistance is paved to the upside amid rate-cut expectations. Economic data updates provided investors with strong evidence that rate cuts from the U.S. Federal Reserve (Fed) are pretty much imminent amid a weakening labor market. The 10-year Treasury rate briefly dipped below 4.0%, matching the April lows this year, but ultimately finishing the week up, at 4.07%. Additionally, the 30-year fixed mortgage rate has continued to decline. U.S. weekly average 30-year mortgage rates via Freddie Mac are at 6.35%, the lowest point since October 2024. Elsewhere, the S&P 500 rose 1.6% last week and saw its best weekly performance since August. The tech-heavy Nasdaq advanced 2.0%, and the Dow finished up 1.0% during the five-day stretch.
Nine of the 11 S&P 500 sectors finished the week in positive territory, with information technology, communication services and utilities pacing gains. The two lone sectors failing to make gains were materials and consumer staples. In commodities, gold and silver posted strong weekly gains, boosting year-to-date gains to 38.7% and 45.7%, respectively.
The S&P 500 has now logged advances in five of the past six weeks and is currently sitting in short-term overbought territory. Notably, the S&P 500 is trading two standard deviations above its 50-day moving average for the first time since June 2023, according to Bespoke Investment Group. Following that June reading, the index consolidated for two to three months before resuming its upward trend. A similar pause may be warranted as the market digests evolving Fed policy and signs of a cooling labor market. Market catalysts are likely to remain subdued until the kickoff of third-quarter earnings season. Currently, the index has notched 23 record closing highs year-to-date but remains well below the 57 highs recorded last year.
Economic data was top of mind last week as investors got the last bit of key inflation data before the September Fed meeting. The U.S. Consumer Price Index (CPI) showed that inflation was in line with economists’ forecasts, clearing the way for potential rate cuts from the Fed. Although the inflation rate as measured by CPI is still stubbornly high, near 3.0%, the weakening in the labor market is the driving force behind easing monetary policy. The average number of job growth measured by nonfarm payrolls has materially declined from 167,000 per month in 2024 to just an average of 26,000 per month over the last four months. Additionally, a surge in first-time unemployment claims on Thursday showed the highest level since 2021 and reiterated the weakness of the labor market.
Despite a lackluster job market, U.S. equity investors are optimistic as shown by the all-time highs in U.S. equity markets. This can be attributed to expectations that the United States will avoid a recession, and growth will reaccelerate in 2026, all while the Fed lowers rates—a setup typically associated with positive forward returns for stocks. History shows that when the Fed throws in the towel and starts cutting, equity markets rarely lose the fight—rising each of the last nine times in similar scenarios. Although history is never a predictor of future returns, it is important to remember the old adage to “not fight the Fed” as a long equity investor. Another catalyst for equity markets is the artificial intelligence investment cycle, which has continued to accelerate in 2025.
Last week Oracle reported earnings, catching the attention of markets after issuing guidance of a 14-times increase in its cloud infrastructure segment over the next five years. This sent shares jumping by more than 35% in one day, with the stock adding more than the market cap of McDonalds in one day. To deliver this growth, Oracle is spending a hefty amount, with 40% of annual revenue being dedicated to capital expenditures. One concern is customer concentration. A lot can change in five years, and OpenAI, parent company of ChatGPT, is responsible for a large sum of the guided revenue for Oracle. If this doesn’t materialize, then Oracle will see a much-lower return on its investments into data centers. All in all, the build-out of artificial intelligence infrastructure and productivity gains associated with AI should provide a tailwind to gross domestic product in 2026.
Pushback on the path higher for equities is the lofty valuation of the U.S. stock market. Currently, the S&P 500 is trading in the 95th percentile of expensiveness relative to history. Although prospects for growth are undoubtedly robust, given the catalysts laid out above related to monetary easing, reaccelerating growth and AI investment, it is important to maintain diversification. Going forward, there will be much less opportunity for gains via valuation expansion, and it will rather need to come from earnings growth.
Elsewhere, assets in money-market funds will start to be challenged as the Fed lowers the target range for overnight lending. According to CNBC, there is a record $7.6 trillion in money market funds, roughly 40% more than the amount in 2022. If the Fed delivers on the six 25-basis-point cuts priced in by the market through 2026, money market funds will be yielding closer to today’s rate of inflation of 3.0%, about 150 basis points lower. As money market yields get delivered a punch, these products will start to look less attractive and could boost demand for equities.
News flow this week will be highly geared toward the September Fed meeting on Wednesday. Market participants will listen closely to Fed Chaiman Jerome Powell’s press conference for updates on policy and commentary surrounding inflation and the labor market. On the earnings front, it will be relatively quiet, with offseason reports from FedEx, Darden Restaurants, Lennar Homebuilders, General Mills, Cracker Barrel, and Dave & Busters. Highlighting the economic calendar will be U.S. retail sales on Tuesday. Other reports include an update on U.S. leading economic indicators and real estate updates via housing starts and building permits.
Economic Calendar Sept. 15 to Sept. 19
| Time (ET) | Report | Period | Median Forecast | Previous |
| MONDAY, SEPT. 15 | ||||
| 8:30 AM | Empire State manufacturing survey | Sept. | 4.5 | 11.9 |
| TUESDAY, SEPT. 16 | ||||
| 8:30 AM | U.S. retail sales | Aug. | 0.30% | 0.50% |
| 8:30 AM | Retail sales minus autos | Aug. | 0.40% | 0.50% |
| 8:30 AM | Import price index | Aug. | -0.20% | 0.40% |
| 8:30 AM | Import price index minus fuel | Aug. | — | 0.30% |
| 9:15 AM | Industrial production | Aug. | -0.10% | -0.10% |
| 9:15 AM | Capacity utilization | Aug. | 77.40% | 77.50% |
| 10:00 AM | Business inventories | July | 0.20% | 0.20% |
| 10:00 AM | Home builder confidence index | Sept. | 33 | 32 |
| WEDNESDAY, SEPT. 17 | ||||
| 8:30 AM | Housing starts | Aug. | 1.37 million | 1.43 million |
| 8:30 AM | Building permits | Aug. | 1.37 million | 1.35 million |
| 2:00 PM | FOMC interest-rate decision | |||
| 2:30 PM | Fed Chair Powell press conference | |||
| THURSDAY, SEPT. 18 | ||||
| 8:30 AM | Initial jobless claims | Sept. 13 | 243,000 | 263,000 |
| 8:30 AM | Philadelphia Fed manufacturing survey | Sept. | 4 | -0.3 |
| 10:00 AM | U.S. leading economic indicators | Aug. | -0.20% | -0.10% |
| FRIDAY, SEPT. 19 | ||||
| 2:30 PM | San Francisco Fed President Mary Daly speech |
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