Weekly Investment Perspective

Markets spent most of the week in wait-and-see mode ahead of the Fed’s September meeting, and the outcome was largely as expected: a 25 basis point rate cut. But beneath the surface, the tone is shifting. The Fed’s updated projections and Powell’s press conference made clear that policymakers are increasingly focused on risks to the labor market—even as inflation remains above target. In response to easing financial conditions, investor positioning pushed further into risk assets, with tech stocks and rate-sensitive cyclicals and small cap stocks seeing the strongest gains. The S&P 500 and the tech-laden NASDAQ hit new record highs after rising 1.2% and 2.2%, respectively. Meanwhile, the Russell 2000 finished higher for the seventh-straight week with a 2.2% gain.

The measured quarter-point rate cut was not unanimous. Stephen Miran, newly confirmed to the Fed board, dissented in favor of a larger 50 bp cut, underscoring the growing divide within the committee. While the Fed’s dot plot now implies two more cuts by year-end with one participant (likely Miran) expecting rates to be cut further by 1.25% before year-end, nearly half of members see no further action. That kind of split is rare and signals how uncertain the path forward remains.

Consumer data continues to surprise to the upside. August retail sales rose 0.6% month-over-month, beating expectations and marking the third straight month of solid gains. Control-group sales, which feed directly into GDP, rose 0.7%, suggesting Q3 consumption growth could exceed 2% annualized. Online sales were strong, but gains were broad-based across discretionary categories. The rebound in spending suggests that higher-income households remain resilient, even as lower-income consumers feel the pinch from tariffs and a cooling labor market.

Housing, however, remains a drag. August housing starts fell 8.5%, with building permits down 3.7%. The South drove the decline, and builders continue to report elevated inventories and affordability challenges. The NAHB Housing Market Index held steady at 32, still well below the neutral level of 50. Sentiment among homebuilders remains subdued, though there are early signs of optimism as mortgage rates edge lower.

Labor market data was mixed. Initial jobless claims dropped by 33,000 to 231,000, a better-than-expected decline, but continuing claims remain elevated at 1.92 million. The Fed is watching this closely. Powell emphasized that downside risks to employment are growing, and the committee is prepared to act if hiring slows further. For now, the labor market is softening—not collapsing.

On the corporate front, AI remained in the spotlight. AI chip giant Nvidia announced a $5 billion investment in Intel and a strategic partnership to co-develop data-center and PC products that pair Nvidia’s AI platforms with Intel’s CPU and packaging capabilities. The move follows the U.S. government’s late-August decision to take an approximately 10% equity stake in Intel, underscoring the national interest in maintaining capabilities to manufacture advanced chips domestically.

The week ahead will be a bit quieter in terms of economic releases, though it will be a busy stretch for members of the Federal Reserve that will give several speeches providing more perspective on the central bank’s outlook. Additionally, new home sales come out along with durable goods and final numbers on Q2 DGP and August existing home sales. Friday news includes August core PCE.

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