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Last week US markets swung between optimism and caution, as shifting policy expectations and renewed consumer discomfort made investors jittery. It was Federal Reserve Chair Jerome Powell’s dovish stance at Jackson Hole that saw the markets rally as the week progressed. Acknowledging signs of labour market softness and signalling that the Fed was open to a September rate cut, Powell triggered strong gains across equities. The Dow surged more than 800 points to a new record close, while the S&P 500 and Nasdaq followed, led by small-cap and cyclical stocks. The Russell 2000 outperformed signalling broader participation. Bond yields declined, the dollar softened, and gold firmed as risk appetite improved.
The momentum, however, faded into the week’s end. On Friday, equities pulled back, the S&P 500 fell 0.6%, Nasdaq lost 1.2%, and the Dow slipped 0.2%. Still, all major indices ended August higher, with the S&P and Nasdaq recording a fourth straight monthly gain. Treasury yields declined across the curve, particularly at the front end, as markets priced in an 85% chance of a 25-basis-point rate cut in September. Credit markets remained stable, with modest gains in municipals and mortgage-backed debt.
Consumers Feel the Pinch
Macro data presented a mixed picture. Core PCE inflation edged up 0.3% in July, nudging the year-on-year rate to 2.9% from 2.8%. The disinflation trend remains intact, but progress toward target and what the Fed perceives as ideal is proving slow.
Consumer sentiment, however, weakened. The University of Michigan’s final August survey showed the headline index falling to 58.2 from 61.7. One-year inflation expectations remain close to 5% at 4.8%, while long-term expectations edged down to 3.5%.
Chart 1: University of Michigan Consumer Confidence
Source: Bloomberg
That matters. Inflation expectations influence wage negotiations and pricing behaviour. Persistent concern among households may tie the Fed’s hands and constrain how aggressively it can ease. Buying conditions for big-ticket items deteriorated, with more consumers citing concerns over tariffs, taxes, and inflation.
The market’s rhythm tells a two-part story, Powell’s pivot lifted early sentiment, but still high inflation expectations and softening confidence tempered the exuberance. Equities, particularly in tech and AI sectors, remain strong. Persistent consumer anxiety, however, could moderate the Fed’s path forward, making markets highly reactive to incoming data.
Hot Potato of the Week: US Employment Report
This week’s US jobs report will be as much a test of credibility of the data as a test of the labour market. Markets expect a modest 78,000 gain in non-farm payrolls, below the long-run structural average of around 100,000. Normally, such a figure would raise few alarms given the ±50,000 margin of revision. But these are not normal times.
Chart 2: US Non-farm Payrolls Weaken, but Let’s not Overinterpret
‘000s (last data point a forecast)
Source: Bloomberg
The BLS Commissioner’s unceremonious removal has sparked broader concerns of political interference in what should be a neutral institution. Investors will be wondering if the data reflects the prevailing economic reality or a managed narrative.
Adding to the complex jobs’ scenario, structural shifts in immigration are impacting labour supply. Historically, net immigration added 30,000–50,000 workers monthly to the labour force. If current inflows are closer to 25% of past levels, that monthly boost may now be just 10,000–15,000, mechanically depressing headline jobs growth by up to 40,000.
A print of 78,000 may be entirely consistent with full employment in a tighter, aging, less migrant-driven labour market. But perception matters. With the Fed warming to rate cuts, this release could act as a trigger for confidence or concern. The key question is no longer just what the number is, but who trusts it or how much trust is reposed into it.
Technology: From Surprise to Scaling Infrastructure NVIDIA’s latest results confirmed a turning point, no longer the big positive surprises. Earnings were strong, $46.7 billion in quarterly revenue, up 56% year-on-year and guidance for the next quarter, of $54 billion met expectations. But the results packed no upside surprises. In a market priced for perfection, that was enough to dampen sentiments.
Chart 3: Nvidia’s share price Pause
Source: Bloomberg
The focus is shifting. With mega-cap valuations appearing stretched, investors are rotating toward sectors still in early growth phases.
Infrastructure. The AI buildout is driving unprecedented demand for power and data centres. We are witnessing full-cycle capital investment across compute, grid, and energy systems. This is now about physical scale, AI at industrial intensity. Infrastructure spending could run into the trillions over the next five years.
Applications. Venture capital is reallocating toward AI tooling, vertical software, developer platforms, embedded systems. These are early-stage plays aligned with a deployment cycle just getting started.
The next leg of tech earnings will not hinge on headline beats from familiar names. It will come from the buildout beneath and the applications above, the hard infrastructure to run AI at scale, and the software that makes it productive. Investors who pivot early could be positioned in the true structural growth engines of the next decade.
Where the Future Lies: The Strategic Rise of the SCO
Given the current political backdrop, the Shanghai Cooperation Organisation (SCO) summit being held in Tianjin this week is more than a symbolic gathering. With China hosting Russian President Vladimir Putin and Indian Prime Minister Narendra Modi, the summit marks a deeper pivot toward strategic alignment among non-Western powers.
Often dismissed as toothless by Western powers, the SCO is quietly becoming functional. It offers emerging powers a platform for coordination without Western preconditions. What is emerging is a pragmatic multipolarity, one rooted less in ideology and more in hard assets: logistics, energy, population scale, and technology.
While Western powers grapple with decoupling and populism, the SCO bloc is building continuity. Long-term trade corridors, digital infrastructure, and energy ties are becoming the new instruments of influence. China’s Belt and Road, Russia’s pipelines, India’s digital expansion, and Central Asia’s resource leverage are forming an increasingly coherent framework.
The SCO may lack the force projection of NATO or the capital heft of the G7, but it reflects a critical shift in global influence toward execution, not just rhetoric. For investors, the message is clear: the world’s growth engines are increasingly anchored in regions prioritising scale, interdependence, and pragmatism. Asset allocation must adapt accordingly. As a reminder the populations of India and China are combined over eight times that of the United States.
Gary Dugan – Investment Committee Member
Bill O’Neill – Non-Executive Director & Investor Committee Chairman
1st September 2025
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