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S&P 500: +0.45% | Dow: +0.49% | Nasdaq: +0.83%
Stocks finished the week higher, but Friday’s selloff delivered an important warning: the market may have to rethink the assumption that lower interest rates are coming soon. The S&P 500 closed Friday at 7,711.76, the Nasdaq at 26,402.42 and the Dow at 53,559.99.
The Big Story: The Fed Pushes Back
The biggest market-moving event of the week was Federal Reserve Chair Kevin Warsh’s Jackson Hole speech.
Warsh made it clear that inflation remains too high and that the Fed’s primary responsibility is restoring price stability. His comments were interpreted as significantly more hawkish than investors had expected. Market expectations for a September rate hike jumped to roughly 58%, up from about 36% before the speech.
That immediately pushed Treasury yields higher and pressured stocks on Friday.
Translation for investors: The market had been hoping for easier monetary policy. The Fed just reminded everyone that inflation—not the stock market—is still in charge of the decision.
Earnings: Still the Bull Market’s Biggest Support
The good news is that corporate earnings remain exceptionally strong.
Second-quarter S&P 500 earnings growth is projected at roughly 34.5% year over year, while about 85% of companies reporting have exceeded earnings expectations.
Nvidia was once again the headline act. Its latest results showed enormous AI-driven demand, helping propel technology stocks higher during the week.
The problem is becoming increasingly clear:
Earnings are excellent — but expectations are also extremely high.
That means companies can report strong numbers and still see their stocks fall if guidance, margins or future growth fail to exceed already-elevated expectations.
War & Oil Remain the Wild Card
Geopolitical risk remains another major variable.
The ongoing Iran conflict continues to affect energy markets, inflation expectations and investor risk appetite. Oil prices remain elevated, creating a potential second-round inflation problem for the Fed.
That creates an uncomfortable combination:
Higher oil → higher inflation → higher Treasury yields → less room for the Fed to ease → pressure on stock valuations.
At the same time, any meaningful de-escalation in the conflict could have the opposite effect by pushing oil prices lower and giving the Fed more flexibility.
Government Data Takes Center Stage Next Week
Next week could be substantially more important than this past week because investors receive a flood of economic data.
Tuesday:
• ISM Manufacturing
• JOLTS Job Openings
• Construction Spending
Wednesday:
• ADP Employment
• Factory Orders
• Durable Goods
• Federal Reserve Beige Book
Thursday:
• Initial Jobless Claims
• Productivity & Unit Labor Costs
• ISM Services
Friday — THE BIG ONE:
• August Nonfarm Payrolls
• Unemployment Rate
• Average Hourly Earnings
The official August employment report is scheduled for Friday, September 4 at 8:30 a.m. ET.
What Will the Market Be Watching?
The jobs report could determine the market’s next major move.
Too strong:
A stronger-than-expected labor market could reinforce inflation concerns and increase expectations for a September rate hike.
Too weak:
A significant deterioration in employment could revive economic-growth concerns and raise recession fears.
Just right:
Moderate job creation with contained wage growth could give stocks the best outcome — economic resilience without forcing the Fed to tighten further.
Our View Going Into September
The underlying bull market remains intact.
Corporate earnings are strong. AI investment remains powerful. Economic activity has not collapsed. And the major indexes remain near record levels.
But the margin for error is getting smaller.
After a powerful run, investors should expect more volatility as the market balances three competing forces:
1. Strong corporate earnings
2. Persistent inflation and higher interest rates
3. Geopolitical and energy-market risk
The key question entering September isn’t whether the economy is strong.
It’s whether the economy is strong enough to support earnings growth — but not so strong that it forces the Fed to keep rates higher for longer.
That tension could define the market’s next major move.
Bottom Line:
The bull market survived another test this week. But with the Fed turning more hawkish and the employment report coming Friday, September is starting with the market’s attention firmly on interest rates, inflation and economic growth.
