Markets Hold Firm as Fed, AI, and September Volatility Take Center Stage

1. Economic Data Paints a Resilient Picture Last week, markets continued to grind higher, with the S&P 500, Nasdaq, and Dow Jones Industrial Average gaining 0.50%, 0.85%, and 0.55%, respectively.¹ The economic calendar was busy, with data providing a mixed but generally constructive picture of the U.S. economy. The latest PCE report showed headline inflation rising 0.2% in July, slightly above the 0.1% consensus, bringing the year-over-year rate to 3.7% versus expectations of 3.6%. Core PCE increased 0.2% for the month and remained at 3.3% year-over-year, in line with expectations.² While inflation remains above the Federal Reserve’s 2% target, the report did not show a meaningful reacceleration in underlying price pressures.

The consumer also continues to demonstrate resilience. Personal income increased 0.4% in July, accelerating from June’s 0.2% gain, while personal spending rose for the 18th consecutive month, increasing 0.16% month-over-month and 5.9% year-over-year. The savings rate also improved to 3.0% from 2.7%, providing some additional support for household balance sheets. Housing was a weaker spot, with new-home sales falling 10.5% in July to a 607,000 annualized pace, the lowest level since January.³ However, the June figure was revised significantly higher to 678,000 from 628,000.

The labor market remained particularly encouraging, with initial jobless claims falling by 4,000 to 203,000 for the week ended August 22, well below the 208,000 consensus and the 229,000 level from the same week last year.⁴

2. Fed Signals Patience as Inflation Remains in Focus Fed Chair Kevin Warsh’s speech at Jackson Hole struck a somewhat more hawkish tone, but stopped short of making a September rate hike a foregone conclusion. Importantly, Warsh provided more detail than in some of his previous remarks, particularly around how the Federal Reserve approaches inflation and future policy decisions. He emphasized the need to rethink how inflation is measured and monitored, while also advocating for less forward guidance and avoiding pre-commitments to future policy actions. Despite the hawkish tone, Warsh did not explicitly signal a September move, with markets currently pricing in roughly a 63% probability of a rate hike at the next meeting.

Inflation remains elevated, with Core PCE holding at 3.3% year-over-year,⁵ but there are also encouraging signs that the recent inflation trend is moderating. The trailing three-month annualized CPI rate is running at just 1.6%, highlighting the significant difference between backward-looking year-over-year measures and more recent inflation trends. With August economic data still to come, we believe there are too many moving pieces to make a definitive call on September policy. Our expectation is that Warsh will remain patient and allow the incoming data to guide the decision rather than rushing to tighten policy.

Ultimately, the most important takeaway is that the economy remains strong. Even if the Fed ultimately raises rates by 25 or 50 basis points, we believe the impact on the broader growth narrative and corporate earnings momentum would likely be limited.

3. NVIDIA Reinforces the Strength of the AI Investment Cycle NVIDIA delivered another strong quarter, reinforcing not only the durability of AI demand but also the broader economic growth tied to the ongoing infrastructure buildout. Adjusted EPS came in at $2.22 versus expectations of $2.09, representing 111% year-over-year growth, while revenue reached $96.22 billion, ahead of the $92.38 billion consensus and up 105% year-over-year.⁶ The strength extended across the business, with both data center and hyperscaler revenue growing more than 100% year-over-year.

Perhaps more importantly, NVIDIA’s outlook provided additional confidence in the longevity of the AI investment cycle. Management expects revenue growth to remain exceptionally strong through 2028, with expectations for growth of roughly 70% compared with approximately 45% previously anticipated.⁷ The company also expects demand to continue exceeding supply through 2028, highlighting the significant visibility it has into future AI infrastructure spending.

4. September Volatility May Create Opportunities We expect September to bring some volatility, as it has historically been one of the more challenging months for equities, with the S&P 500 10-year average at -2.7%.⁸ However, we view any weakness as an opportunity to add to positions rather than a change in our underlying outlook. Historically, October and November have been much stronger months, with 10-year average gains of 2.8% and 3.9%, respectively. With earnings momentum remaining strong and expectations for approximately 30% EPS growth this year intact, we continue to see the potential for volatility to create attractive entry points heading into the fourth quarter.

5. Fixed Income U.S. Treasury yields were mixed across the curve last week as markets digested Fed Chair Kevin Warsh’s comments on committing to fighting inflation at the Jackson Hole Economic Symposium. By Friday’s close, the 2-year yield rose 12 basis points, while the 10-year and 30-year yields declined 1 and 6 basis points, respectively. Markets repriced Fed rate hike expectations, leaving September as a toss-up and pricing in almost a full rate hike by the October meeting.⁹

Credit markets strengthened last week, with broad-based tightening across both the investment grade and high yield segments. Investment grade spreads moved 4 bps tighter to +113, while high yield spreads narrowed 12 bps to +300. High yield spreads now sit just 7 bps above their 5-year tights of +293, last reached in January 2025.¹⁰

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Return for Selected Indices¹¹

All charts are for illustrative purposes only. Past performance does not guarantee future results. Yield, if shown, are for informational purposes only, may change, and do not guarantee future income, return, or investment results. An index is a portfolio of specific securities (such as the S&P 500, Dow Jones Industrial Average and Nasdaq composite), the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index.

Sources:

1. Bloomberg: As of August 31, 2026 ↩︎
2. Bloomberg: As of August 26, 2026 ↩︎
3. Bloomberg: As of August 25, 2026 ↩︎
4. Bloomberg: As of August 27, 2026 ↩︎
5. Bloomberg: As of August 26, 2026 ↩︎
6. Bloomberg: As of August 26, 2026 ↩︎
7. NVIDIA Earnings Call: As of August 26, 2026 ↩︎
8. Bloomberg: As of August 28, 2026 ↩︎
9. Bloomberg: As of August 31, 2026 ↩︎
10. Bloomberg: As of August 31, 2026 ↩︎
11. Bloomberg: As of August 31, 2026 ↩︎

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