Weekly Investment Perspective

U.S. stocks finished a mixed week as investors weighed the Federal Reserve's first interest-rate increase in three years, continued volatility in energy markets, and ongoing developments within artificial intelligence. The Dow Jones Industrial Average fell 1.69%, the S&P 500 slipped 0.08%, while the Nasdaq Composite gained 0.72%, supported by strength in select technology and software companies.

The week's biggest development came from the Federal Reserve, which raised interest rates by 0.25% and signaled that another increase remains possible before year-end. Fed Chair Kevin Warsh emphasized that inflation control remains the central bank's primary focus, citing resilient economic growth, elevated energy prices, and geopolitical risks. Treasury yields moved higher following the announcement, with investors adjusting to the possibility that rates could remain elevated longer than previously expected.

Despite higher rates, the U.S. economy continues to show surprising resilience. August retail sales rose 1.2%, well above expectations, while core retail sales were also strong. Meanwhile, initial jobless claims fell to 196,000, reinforcing the view that layoffs remain limited and the labor market remains healthy. Oxford Economics estimates third-quarter GDP growth is currently tracking near 4%, supported by solid consumer spending and a rebuilding of business inventories.

Artificial intelligence remained a major theme throughout the week. Early concerns emerged after several industry leaders called for a more cautious approach to advanced AI development, while OpenAI disclosed several AI safety incidents. However, investors ultimately focused on the continued strength of AI-related spending. Announcements involving data-center expansion, cloud computing infrastructure, and AI power requirements highlighted that demand for computing capacity remains robust. AI-driven capital spending remains a meaningful support for economic growth and corporate earnings.

Energy prices also remained a key driver of markets. Oil prices fluctuated throughout the week as investors reacted to changing headlines surrounding Middle East supply risks and Saudi export capacity. While prices eased from their highest levels, fuel costs remain elevated and continue to influence inflation expectations. Oxford Economics recently raised its outlook for fourth-quarter oil prices and expects higher energy costs to place upward pressure on inflation while squeezing household purchasing power. Transportation companies, airlines, and other fuel-sensitive businesses have already begun discussing the impact of higher operating costs.

Housing remains one of the areas most affected by rising interest rates. Housing starts, building permits, and homebuilder sentiment all came in below expectations as mortgage rates climbed to their highest levels since 2025. While home sales have proven somewhat more resilient than expected, affordability challenges continue to weigh on housing activity.

Overall, the investment backdrop remains constructive. Economic growth is healthy, corporate earnings expectations remain solid, and AI-related investment continues to provide meaningful support for business spending. At the same time, higher interest rates and elevated energy prices are likely to create periods of volatility as investors assess the path of inflation and monetary policy.

Investors will be watching several important economic releases this week, including durable goods orders, new home sales, consumer sentiment, PMI surveys, and weekly jobless claims. Markets will also monitor comments from Federal Reserve officials and the scheduled meeting between President Trump and Chinese President Xi Jinping, with trade, artificial intelligence competition, and geopolitical issues expected to be key topics.

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