The Setup & Where to Focus

Stocks were weak leading into the key Jackson Hole Economic Symposium, but then rocketed higher following a somewhat dovish speech from Fed Chair Powell. 

• The S&P 500 managed to eke out a 0.3% weekly gain, falling just two points shy of an all-time high on Friday. The Nasdaq Composite underperformed, losing 0.6%, as big-cap tech equities lagged. Hope for a September rate cut morphed into an expectation after Powell remarked that a shifting balance of risks may warrant adjusting policy. That’s all stocks needed to soar leading into the weekend.

The Cboe Volatility Index (VIX) sank under 15, posting its lowest close going back to mid-December 2024. 

• That suggests this week could be tame in terms of day-to-day swings, but we’ll still have market-moving data crossing the wires. Durable Goods Orders, Consumer Confidence, NVIDIA earnings, a GDP update, and PCE inflation each could stir up markets ahead of the long holiday weekend. Afterward, a slew of August jobs data will shed light on the state of what appears to be a very soft labor market.

Zooming in on the sectors, Energy (XLE) snatched the top spot last week. 

• The oil & gas space scored a 2.8% advance. Not a big move, but we have been noting some stealthy gains in crude oil. WTI has attracted buyers on approaches to the low $60s per barrel lately, while Brent may have a floor in the mid-$60s. 

• Natural gas prices have been outright weak, however, and intuition says that domestic drillers should have a tough time. That wasn’t the case last week, though.

• Within the oil patch, service stocks like SLB (SLB), Baker Hughes (BKR), and Halliburton (HAL) were up big. Refiners also rallied hard. Of course, the biggest company in the sector, Exxon Mobil (XOM), jumping 4.5% had the most significant impact. 

• Despite Energy’s near-term strength, Allio’s model, guided by Altitude AI, signals some underperformance from this slice of the stock market.

Also strong last week was Real Estate (XLRE). The property sector rose 2.4%, no doubt aided by the market’s dovish interpretation of Powell’s renewed flexible monetary policy posture. 

• Mortgage rates settled at their lowest level since early October 2024 once the dust settled after Jackson Hole. There are no household names within Real Estate, and the group tends to move as a monolith when the macro is in focus. 

• With low valuations and an improved chart, this small segment of the S&P 500 may continue to rise. A hot PCE inflation report or strong August payrolls survey could put a damper on the near-term rally. 

• Also recall the volatility that came across New York City REITs in the wake of Zohram Mamdani’s big primary win in June.

Information Technology (XLK) brought up the rear amid a five-day stretch marked by losses Monday through Thursday and massive gains on Friday. 

• On net, tech dropped 1.6%, its second consecutive weekly giveback. All the stars dimmed just a bit: NVDA fell 1.4%, Microsoft (MSFT) lost 2.5%, Apple (AAPL) shed 1.7%, Amazon (AMZN) dropped 1.0%, and Meta Platforms (META) was the biggest loser, -3.9%. Alphabet (GOOGL) and Tesla (TSLA) rose. 

• Within the strict bounds of the Information Technology sector, there were sizable declines in some of this year’s hottest stocks, including Palantir (PLTR), down 10%, and Oracle (ORCL), -5%. 

• Many investors actually welcomed the cool-off, as the so-called “Other 493” picked up the slack. Hence, there was broad participation in the global equity market rally—it was not pinned to just the Magnificent Seven stocks or other red-hot AI plays.

As for US small and mid-caps, Friday felt like a watershed moment. 

• The iShares Russell 2000 ETF (IWM) soared 3.9%, one of its best days going back to June of 2020. Now almost four years removed from its last all-time high, IWM is a clear beneficiary of a lower Fed policy rate. Small domestic companies rely on short-term debt financing, so an imminent drop in borrowing costs would go straight to the bottom line. Large companies go out many years to acquire capital, while some of the biggest tech firms don’t have much net debt at all. 

• Not surprisingly, regional banks (KRE) landed their best weekly close of 2025. Other niches like small retail stocks and homebuilders advanced sharply starting at 10 a.m. on Friday, when Powell’s remarks were published. 

• The SPDR S&P MidCap 400 ETF (MDY) also outperformed the S&P 500 for many of the same reasons. For both small and medium-sized companies, much hinges on the health of the US economy. If job growth continues to weaken and consumer spending pulls back, the rally could prove to be short-lived. 

• Monitoring macro conditions in the weeks ahead will be critical. Our Core Macro strategy lifted its stake in small caps earlier this month.

Turning to overseas stocks, the Vanguard FTSE All-World ex-US ETF (VEU) rose 1.2%, outperforming the S&P 500 by about a percentage point, but it lagged the equal-weight version of the S&P 500 (RSP). 

• The US Dollar Index (DXY) suffered its worst daily decline in four months, thanks to the market’s reaction to Powell’s speech, but only dipped 0.3% over the five days. Still, strength among foreign shares was good enough to send VEU to its second straight record high weekly settle. 

• Now up 24% year-to-date (dividends included), VEU has outperformed the S&P 500 ETF (SPY) by 13 percentage points. That being said, ex-US equities have trailed domestic large caps since mid-April. 

• An elegant alpha handoff has transpired throughout 2025—Europe (VGK) outperformed big through Liberation Day, with notable strength in China (FXI), Emerging Markets (EEM) picked up the slack around the turn of the year, and just in the last month, Japan (EWJ) has come on strong. 

• We continue to believe that the US is still the best house on the street. While an allocation to internationals helps from a diversification point of view, investors shouldn’t expect sustained outperformance from the group, which is now about 35% of the global stock market.

Back home in the bond market, it was all about Powell. 

• Seconds after the speech dropped on the Federal Reserve’s website, the yield on the two-year Treasury note plunged 10 basis points to below 3.7%. Remember that in fixed income, rising bond prices mean lower interest rates. 

• Although it was a significant swing, the yield decline was a far cry from the bond-buying burst witnessed on the first of the month, when the July payrolls report posted. So, the stock market rally may have been more of a relief than a celebration. 

• Important for clues on the macro, the 2-year/10-year Treasury yield spread steepened to 55 basis points. A steep yield curve is normal and a generally healthy sign for the US economy, fiscal worries notwithstanding. 

• As the curve steepens, some investors may consider reducing cash and buying longer-dated notes and bonds to capture those more-impressive rates. 

• All the while, corporate credit spreads remain extremely depressed—another bullish sign when viewed through the macro lens. Allio is pleased to see the rally across the bond world—for August, our model shifted to fixed income.

Wrapping up with commodities, we touched on oil’s strength earlier. 

• The prompt-month of WTI is now near $64, with Henry Hub natural gas plummeting to its cheapest price going back to early November 2024. Retail gasoline is also set to take a dive as the energy market shifts from the summer blend to the cheaper winter blend. 

• All these factors could pressure headline CPI and PCE through year-end. Of course, the market pays closer attention to the core inflation rates, which strip out the volatile food and energy components. 

• Gold (GLD) and silver (SLV) worked last week, too. The former gained 1.0% and the latter logged a 2.4% advance. As for crypto, bitcoin (IBIT) volatility remains exceptionally low by historical standards. IBIT wobbled, ending the week 0.3% lower. Ether (ETHA), the world’s second most valuable cryptocurrency, soared another 10.4%, but the rise came after a sharp decline over the first half of the week. Ether now trades at a record price, near $5,000.

The Look Ahead

Investors get a chance to digest, and possibly rethink, Powell’s Jackson Hole address this week. We’ll get key growth and inflation data, comments from FOMC voting members, reads on the housing market, and an update on consumer confidence. It's the unofficial final week of summer, so volume may be light, but that doesn’t mean volatility will be on vacation. Let’s get to it.

Monday’s headliner is New Home Sales for July, expected to show a slight uptick from 627,000 new homes hitting the market in June. 

• This could be a volatility catalyst for homebuilder stocks, which have sported large daily price swings. That comes at 10 a.m. ET. 

• Before the bell, the Chicago Fed National Activity Index is forecast to reveal a slight July dip. 

• Then at 10:30 a.m. ET, the Dallas Fed Manufacturing Index hits the tape. It’s an August read, so it will be timelier than the Chicago data point. Recall last week that the S&P Global Manufacturing PMI for August rose to its best level since 2022, so our team expects a healthy Dallas Fed Mfg figure.

Tuesday’s slate is busier. 

• July Durable Goods Orders arrives in the premarket, and economists expect another sequential decline in this volatile data series. The more important ex-Transports gauge should tick higher from June. 

• At the same time those data are released, Richmond Fed President Tom Barkin speaks. He leans hawkish, so our portfolio team is curious to hear his comments with Jackson Hole now in the rearview mirror. 

• A half-hour later, a June update to the S&P Case-Schiller Home Price Index lands, and a modest 2.9% year-over-year growth rate is seen. 

• At 10 a.m. ET, The Conference Board’s Consumer Confidence report for August crosses the wires. Last week’s Leading Economic Index, published by the same company, revealed the weakest reading in more than a decade. Consumer Confidence inched up in July, but a still-tepid sub-100 survey figure is anticipated for this month. 

• More regional economic surveys come in the morning—the first being the Richmond Fed Manufacturing Index, and the second is the Dallas Fed Services Index. 

• A 2-year Treasury note auction occurs just after lunchtime. 

• It’s also the return of Starbucks (SBUX) pumpkin spice lattes.

Wednesday is lighter. 

• We'll get the weekly Mortgage Applications update at about sunrise, but the report won’t fully capture what the very latest retreat in mortgage rates has done to spur demand. So, watching the Mortgage Bankers Association report in the weeks ahead may be more critical than usual. 

• An hour after the stock market opens, the EIA issues its Wednesday oil storage report, offering another volatility catalyst for the oil patch. 

• Tom Barkin is on the Fed speaking circuit once more in the afternoon, about the time a 5-year Treasury note auction is held. 

• Then perhaps the biggest story away from the macro will be told after the bell—NVIDIA's Q2 earnings report and conference call. CEO Jensen Huang’s outlook for the chips industry will be intently listened to by Wall Street analysts. Of course, with AI hyperscalers like Amazon, Microsoft, Alphabet, and Meta already having reported Q2 revenue, earnings, and capex plans, we have a pretty good beat on what NVIDIA’s sales were. 

• Elsewhere, Wednesday is also when the US begins its 50% tariff on certain imports from India, barring a last-minute trade deal.

Thursday morning is busy, but markets shouldn’t be too surprised by the economic data. 

• A second look at Q2 GDP is the main event, which includes an update to the key PCE Price Index from the April through June period. After the July jobs report shocker, traders know that revisions do matter, but we don’t expect any shockers in either GDP or PCE. 

• Initial Claims hit at the same time, and we have seen a slight increase in the last four weeks, all while Continuing Claims ascend to the highest amount since November 2021. Employers remain hesitant to both hire and fire right now, putting the employment market in a virtual standstill. 

• After the market’s open, Pending Home Sales for July arrive, followed by the Kansas City Manufacturing Index (August). 

• A 7-year Treasury note auction happens in the afternoon. 

• Still, the penultimate trading day of August’s most significant event may be Fed Governor Chris Waller’s 6:00 p.m. ET speech. He’s a leading contender to succeed Chair Powell.

The final trading day of the month is a big one. 

• The July PCE Price Index, the Fed’s preferred inflation gauge, prints in the pre-market, and expectations call for a somewhat firm 0.3% rise in both the headline and core rates. The core PCE Price Index is expected to have risen by 2.8% as of July on a year-on-year basis, well above the Fed’s 2% target. 

• Personal Income and Spending data for the first month of the third quarter will also be parsed. Retailers have reported a pickup in consumer spending lately, along with a solid back-to-school shopping season, so our team would not be surprised to see a beat on that metric. 

• Later in the morning, August Chicago PMI and a final update to the University of Michigan Surveys of Consumers report arrive; neither should be all that market-moving before the three-day weekend.

Fiscal Policy Framework

Congress remains on recess, so the focus was on monetary policy this past week and will be so through the end of the month. As Powell signaled that the FOMC will be open to cutting rates at its September meeting, President Trump ramped up attacks on the Fed. The POTUS said he’d fire Lisa Cook, a voting member on the FOMC, if she doesn’t resign from her post following allegations of mortgage fraud. An open seat would give the president more ammo to fill the Fed with doves, which would mean a faster pace of interest rate cuts. 

When Congress returns to the Beltway, the focus will indeed be on Fed appointments. The Senate is tasked with vetting and potentially confirming Stephen Miran to replace Adriana Kugler. It’s dicey whether he would be approved to cast a rate-cut vote by the September 17 decision.

Big news was confirmed on Friday, away from Wyoming. The Trump administration will take a 10% equity stake in Intel (INTC), deepening its intervention in strategic industries, while also wielding “golden shares” and maintaining equity in key industries like rare earths. 

Elsewhere, Canada chose to lift its retaliatory tariffs on the US last week—a clear win for America and President Trump. It comes as Canada’s retail sales turned negative in July, and its employment situation worsened. Moreover, details were released on the US-EU trade deal, granting lower tariffs on key pharmaceuticals, but maintaining high levies on autos. Late on Friday, President Trump announced new tariffs on furniture imports, stinging shares of RH (RH) and Wayfair (W).

Risks & Opportunities

Global stocks have been strong lately, with particular strength away from the Mag 7. As part of our monthly portfolio recalibrations, we recently reduced equity exposure in favor of bonds. As investors have fallen out of love with commodities, we’ve added to hard assets. Keep in mind that gold, while not far from record highs, has severely underperformed the S&P 500 over the past four months. Partly as a result, we favor silver more today, hence we see its current price as an opportunity heading into the end of the quarter. 

Seasonality remains a headwind, but Allio’s portfolio managers are not outright bearish. Yes, we recently took down total stock market exposure, but we added to small caps before their big jump last week. Big-cap tech lagging last week could lead to further underperformance in, say, the S&P 500 versus the SmallCap 600 Index.

Quick Hits

• The market-implied chance of a September Fed rate cut is now near 80%. It's not a done deal by any means, and a hot PCE inflation report (along with a robust August employment report) could still tip the scales in favor of a hold.

• Friday’s rally was the S&P 500’s best Jackson Hole-Day performance since 2010 and the Russell 2000’s top day since April 9.

• Flows into money market funds have dwarfed flows into equity funds over the past 12 months: $994 billion versus $267 billion.

• The Mutual Fund Cash Ratio is very low at 1.4%. By our assessment, that's close to an all-time low.