After three consecutive weekly gains, U.S. equities took a breather as stronger-than-expected economic data complicated the interest rate outlook. The S&P 500 slipped 0.3%, the Nasdaq declined 0.7%, and the Dow edged down 0.2%, with all three indices pulling back from record highs set earlier in the week.

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.

U.S. equities pushed higher last week with support from near-term rate cut expectations following in-line inflation readings alongside sustained tech stock leadership on positive data points on AI investment trends.

Markets opened the holiday-shortened week with cautious optimism: equity benchmarks briefly hit fresh highs mid-week as investors digested a sequence of cooler-than-expected economic signals that kept the prospect of Federal Reserve rate cuts alive.

The S&P 500 snapped a five-day losing streak with a Friday rally and managed to finish the week in positive territory. Small caps were the big winner, while the Dow and S&P posted modest gains and the Nasdaq slipped; for the week, the Dow rose 1.53%, the S&P 500 edged up 0.27%, the Nasdaq fell 0.58%, and the Russell 2000 small-cap index gained 3.30%.