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Updated: Sep 4


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Executive Summary

  • Equity markets continued to advance through August, as the S&P 500, Nasdaq Composite, and MSCI EAFE indexes ended the month near all-time highs.

  • While technology stocks continued to advance, several recent developments bear watching as investors assess whether the narrative behind artificial intelligence (AI) trade is changing.

  • After holding Federal Funds rates steady for months, markets now see a rate cut as probable in September after the Federal Reserve’s Jackson Hole summit.

  • However, inflation is gradually rising again, potentially hampering the Fed’s ability to lower rates more meaningfully without risking reigniting inflation.

Markets Advance Again

Equity indexes climbed yet again in August, with many, including the S&P 500 (proxy for US large-cap stocks), Nasdaq Composite (technology stocks), and MSCI EAFE (foreign stocks), closing the month near all-time highs.  The S&P 500 and Nasdaq Composite have advanced more than 10% this year, while the MSCI EAFE is up over 20% in 2025.  Bonds also ended the month higher, as the Bloomberg US Aggregate bond index climbed nearly 1% for the month and is up nearly 5% year-to-date.[1]  The positive trend in both stocks and bonds is the rationale behind moving the “Markets” dial up a notch from last month (see above).


After rallying back from the tariff-induced sell-off this spring, technology stocks (especially those involved in artificial intelligence) continue to capture financial headlines.  However, several technology-related stories broke in August that we think bear watching as we think about the AI trade moving forward:

 

  • OpenAI launched its newest large language model, GPT-5, after a two-year wait.  The reception was largely disappointing, leading to speculation that progress may be stalling or OpenAI may be losing its edge.[2]

 

  • The US government appears to be getting more directly involved in the AI semiconductor industry.  Announcements of the US taking a 10% stake in Intel (converting a portion of CHIPS Act support to equity) and the negotiations with AI chipmakers Nvidia and AMD to take a cut of 15% of revenue tied to sales of certain chips to China both occurred last month.[3][4]

 

  • Nvidia, the world’s most valuable company and producer of advanced AI semiconductors, reported on earnings the last week of August.  While top-line sales were in line with expectations, sales from the data center unit fell short of estimates.  The stock subsequently retreated to end the month, as concerns over growth decelerating and competition from China seem to be weighing on investors’ minds.[5]


It is important to note that this is not the first time that stories have broken that challenge the AI trade (both the DeepSeek and Liberation Day stories earlier this year, for example).  However, we will be monitoring developments to see how the market narrative around AI evolves, as we believe a blow to the AI exponential growth story has the potential to negatively impact the economy and the market.

 

Economic Update – Fed in Focus

Economic news remains mixed, much like it has for the previous few months, and that puts the Federal Reserve in a difficult position.  The Federal Reserve’s dual mandate – maintaining full employment and stable prices – appear to be at odds with one another.  The labor market remains solid, but unemployment has ticked up to 4.2%, indicating some softness.  On the other hand, inflation (as measured by Headline and Core CPI data, see below) is also creeping higher.


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In his speech from Jackson Hole, Federal Reserve Chair Jerome Powell acknowledged this dilemma.  However, his comments and dovish language seem to have opened the door for a September interest rate cut (markets are now pricing in two 0.25% interest rate cuts by the end of 2025).[6]  Markets applauded the development, as lower interest rates have the potential to spur economic growth.[7] 

 

Beyond decisions related to Federal Funds rates, the Federal Reserve also remains an important topic because it has drawn the ire of President Trump.  The President has threatened to fire Powell for not moving faster to lower rates, questioning his intelligence and integrity.  Fed governor Lisa Cook has also come under fire for allegations of mortgage fraud, and the President has called for her immediate resignation.[8]   We will be watching developments closely, as we believe that challenges to the Federal Reserve’s independence may not be received well by bond markets (especially on the long end of the curve, which are influenced by many factors).


The Path Forward

Markets advanced yet again in August, continuing what has been a relatively good year for investors thus far.  Uncertainties persist, however, around both Federal Reserve policy and AI as discussed above.  Even the tariff drama remains up in the air, as a federal appeals court recently ruled that enacting emergency law to issue the tariffs to be illegal.[9]  The legal battle, on which trillions of dollars in global trade hinge, may be the biggest unknown of them all.

 

We continue to advocate for diversification while we observe how the myriad stories shaping markets today unfold.  We appreciate your continued trust and welcome the opportunity to speak with you in greater detail in the context of your specific situation.


[1] Source: YCharts

[6] Source: Bloomberg World Interest Rate Probability as of 9/2/25



Important Information

All investments contain risk and may lose value.  Past performance is not an indication of future performance.  Information contained herein has been obtained from sources believed to be reliable but not guaranteed. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.

 

Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate.  There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all clients and each client should evaluate their ability to invest for the long term, especially during periods of downturn in the market.  Outlook and strategies are subject to change without notice.


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Click below to watch our September 2025 Market Outlook video


 
 

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