As summer break wraps up and we trade swimsuits for sweaters, Wall Street is also heading back to school. The big lesson right now? All eyes are still on the Federal Reserve, our economy’s head teacher. At the annual Jackson Hole meeting, Fed Chair Jerome Powell gave a pretty clear hint that the Fed may cut interest rates later this month. Think of it like giving the economy a little recess after a long stretch of tough lessons. Markets reacted with smaller companies leading the charge and Treasury yields dipped. The 10-year Treasury yield looks like it might stay in its current range, which is good news given the government’s rising credit card bill from all that borrowing.
Report Card on Inflation
Inflation got its July report card, and the results were about what the Fed expected. Their favorite measure of inflation inched up just a little, from 2.8% to 2.9%. That tiny bump is a reminder that inflation hasn’t completely graduated yet. And with tariffs acting like extra homework piling on slowly, it may take a bit longer to finish the assignment.
Good Grades for the Economy
Despite the challenges, the economy is still passing its classes with plenty of room to spare. Recession risk remains low, and U.S. companies look healthy. Growth was recently revised higher to 3.3%, a solid mark on the report card. Looking ahead, government policy could give the economy an extra boost in 2026, helping to balance out some of the pressure from tariff headwinds.
Extra Credit from Tech
Corporate earnings have been strong, with the “Magnificent Seven” tech giants showing nearly 30% growth in the second quarter. They’re investing heavily in artificial intelligence, which has the potential to act like rocket fuel for productivity. By 2030, that investment could total $3 to $4 trillion (yes, trillion with a “T”). It’s a big expense now, but it could pay off in a big way down the road. For investors, that means growth-focused companies, particularly in tech, may continue to ace their exams.
Beware the September Slump
Now for a pop quiz: What’s historically the worst month for the stock market? September. Since 1950, the S&P 500 has averaged a -0.7% dip this month. But, when markets head into September with momentum, the slump often feels more like a substitute teacher day, annoying, but not catastrophic. Elevated valuations and tariffs could still give markets a bit of homework to wrestle with.
Our Homework Assignment for Investors
As we head into fall, the lesson plan is simple: stay diversified, don’t panic if we see some September wobbling, and look for opportunities to add to equities on potential dips. Between interest rate changes, tariff impacts, and political noise, there will be plenty of pop quizzes. But long term, the fundamentals still look solid.
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