Hope you are all doing well. A rally on Thursday sent each of the three major U.S. stock indexes to successive record highs. For the S&P 500, it was the fifth positive week out of the past six. Since the start of August, the index has risen nearly 4%. I predicted a 5% pullback starting in August which didn’t materialize. I am happy to be wrong because it means your portfolios are continuing to grow. The Emmy awards are this evening, Severance was nominated for the most Emmys. I have broken down this week’s update using quotes from the hit show.
“You don’t value me; you fear me.”
The market puts a good bit of value in the inflation figures. Investors are afraid that the tariffs will cause inflation to grow at a pace that make the Federal Reserve unwilling to cut interest rates. Thursday’s Consumer Price Index reading showed that U.S. inflation rose at a 2.9% annual rate in August, up from 2.7% the previous month. The month-to-month increase was slightly higher than economists expected. Core inflation excluding food and energy costs climbed to a 3.1% annual rate. The markets are implying a 96.4% probability that the Fed would cut by a quarter point, with a 3.6% prospect of a half-point cut. I think the inflation figures reduce the likelihood of an aggressive rate cut. We probably get a quarter point rate cut. If the cut is delivered without language from the Fed that further cuts are on the way then it has the potential to disappoint investors next week.
“Revel now in the fruit of your labors.”
We have had historically low unemployment. The strong labor market has helped prop up the economy as consumers tend to revel in the fruit of their labor. Consumer spending is about 2/3 of the economy. The last few years we have had the majority of our citizens working and experiencing wage growth. Turns out in America when we make money we spend it rather than save it. That is why labor data is such an important gauge. The labor market seems to be starting to soften. Tuesday’s annual revision by the U.S. Bureau of Labor Statistics concluded that the U.S. economy generated 911,000 fewer jobs from March 2024 to March 2025 than initial estimates reflected. More concerning, the weekly jobs report showed that 263,000 workers submitted unemployment benefit claims. That is the highest level in nearly four years.
“Some residual trauma is to be expected after such an ordeal.”
Provocative actions by Israel and Russia and a politically motivated assassination here in the States have generated anxiety and uncertainty. That is the type of environment gold thrives in. Therefore it is not surprising gold set another new record high. Gold briefly reached $3,706 per ounce on Tuesday after Israel’s military strikes on Hamas leadership in Doha, Qatar caused investors to seek safe-haven assets amidst rising geopolitical tensions in the Middle East. Over the past four weeks, gold has risen more than 10%. On Friday afternoon, it was trading around $3,681 per ounce. Don’t try to chase gains in gold. If you have a gold ETF it may make sense to sell 10 to 15% of your position and take some profit.
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