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%. The tone shifted into Friday on surprisingly dovish Jackson Hole commentary from Chair Powell that pointed to a transition from holding to cutting rates, set against mixed economic readings through the week.

At the Jackson Hole Symposium, Fed Chair Jerome Powell delivered a cautious yet significant speech. He noted that with policy now in restrictive territory and mounting economic uncertainties—particularly a fragile labor market—the baseline outlook and shifting risks “may warrant adjusting our policy stance,” hinting at the possibility of interest rate cuts as early as the September 16–17 meeting. Despite signs of rising inflation pressure, Powell’s remarks put greater weight on the employment side of the Fed’s dual mandate with the belief that tariffs pose a one-time inflation boost (though not “all at once”) and long-term inflation expectations remain anchored. Market reaction was swift as yields retreated and equities rallied into the close.

That greater emphasis on downside risk to employment dovetailed with this week’s mixed macro signals. Readings on U.S. manufacturing and service sector activity in August from S&P Global surprised notably to the upside, including positive indications for hiring intentions, which rose to the fastest pace in over three years. Yet at the same time, weekly jobless claims stayed elevated with continuing claims hitting the highest point since November 2021. Those mixed labor undercurrents fed directly into the consumer lens offered by retail earnings: management teams broadly have not seen a pullback in spending tied to tariffs, but middle- and lower-income households are trading down. Walmart said it is keeping prices low by absorbing much of the tariff impact for now, while several companies flagged cost pressures likely to build into the second half of the year.

Housing remains a headwind. Builder confidence continues to dip with the NAHB/Wells Fargo Housing Market Index falling to its lowest level since late 2022 and marking the 16th straight month below neutral. Meanwhile, July data on housing starts offered a mild upbeat note: single-family starts rose modestly, though affordability headwinds and elevated inventory levels likely limit near-term strength. Even if the Fed begins cutting, the implications for housing are uncertain because mortgage rates track longer-term market yields more than the policy rate; those will move with the evolving growth-and-inflation outlook rather than headline Fed actions alone.

On geopolitics, the Alaska summit between Presidents Trump and Putin brought political movement but no deal. Russia signaled openness to NATO-style security guarantees for Ukraine short of membership, while Ukraine and EU leaders resisted territorial concessions; no new U.S. sanctions were announced. As one observer put it, despite a “show of unity,” a durable peace remains elusive.

This week is quite busy on the economic data front, including more color on the housing market and the state of the U.S. consumer. The week will be headlined by the release of the Fed’s preferred inflation gauge, the PCE index. Core PCE is expected to have ticked higher from 2.8% in June to 2.9% in July. However, Powell’s comments at Jackson Hole make it likely that the Fed is leaning toward a rate cut in September even if the upcoming inflation data shows signs of picking up.

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