Stocks Hover Near Record Levels: U.S. stocks wrapped up the week just shy of their all-time closing highs, supported by an upbeat economic report, strong corporate earnings, and remarks from Federal Reserve Chairman Jerome Powell that fueled expectations for a possible interest rate cut in September. The S&P 500 Index added 0.3% for the week, extending its year-to-date advance to 10.9%. Most sectors finished in positive territory, with energy, real estate, financials, and materials leading the charge. Internationally, developed markets gained 0.8%, while emerging markets slipped 0.4%, bringing their year-to-date returns to 24.6% and 19.9%, respectively.

AI Doubts Raised: Stocks including Meta, Palantir, and NVIDIA came under selling pressure last week, partly due to media circulation of recent studies that raised questions about the effectiveness of AI spending. A July 2025 report from MIT’s Media Lab (Project NANDA) revealed that 95% of enterprise generative AI projects fail to deliver measurable business returns, despite $30–$40 billion in cumulative investment. A June 2025 McKinsey report found that most generative AI projects remain in pilot stages with limited impact on profitability. Whether these articles signal a potential future slowdown in AI spending remains uncertain, but the market response serves as a reminder of the sensitivity of AI stocks to news flow. The AI growth narrative has been a powerful force behind the stock market’s steep climb from its April low.

Interest Rates Slightly Lower: The yield on 10-year U.S. Treasury notes settled at 4.25% on Friday, down 0.07% for the week. The Bloomberg Aggregate Bond Index gained 0.4%, while the Bloomberg U.S. Municipal Bond Index was flat, bringing their year-to-date returns to 4.8% and 0.1%, respectively.

Business Activity Grew at Fastest Pace So Far This Year: S&P Global’s preliminary U.S. Composite Purchasing Manager Index (PMI) came in stronger than expected at 55.4 in early August, the highest reading this year. The gain reflects higher activity in both services and manufacturing. However, businesses in both sectors have reported rising input costs since May, primarily driven by tariffs. A PMI above 50 indicates economic expansion.

Fed Chair Signals Interest Rate Cut in September: Speaking at the Kansas City Fed’s Jackson Hole Economic Policy Symposium on Friday, Federal Reserve Chair Jerome Powell spoke to the challenges of balancing the central bank’s dual mandate of controlling inflation while supporting full employment. He stated that downside risks to the labor market are increasing while inflation has remained elevated. With monetary policy in restrictive territory, Powell suggested that the shifting balance of risks may justify a change in the Fed’s stance. As of Friday, futures markets implied an 81% probability of a 0.25% cut in the fed funds target rate range to 4.00%–4.25% at the FOMC’s next scheduled meeting on September 17th.

Unemployment Claims Edge Higher: Initial unemployment insurance claims for the week ending August 16th increased by 11,000 to 235,000, which was more than the consensus forecast of 225,000. Continuing claims for the week ending August 9th rose by 30,000 to 1.972 million, also higher than the consensus forecast of 1.960 million.

Earnings Season Wraps Up with Strong Results: The second-quarter earnings reporting period is nearly complete, with 95% of S&P 500 companies results in. Earnings per share (EPS) for the index are estimated to have increased 12.9% above the second quarter of last year. As of Friday, analysts project full-year 2025 EPS growth of 10.4%. This is up from 8.5% in early July.

All Eyes on NVIDIA: With questions about prospective AI investment returns on the rise, NVIDIA’s second-quarter earnings report on Wednesday will come under heavy focus. The consensus of analysts tracked by Bloomberg call for revenues of $46.1 billion and earnings per share of $1.01, increases of 60% and 64%, respectively, from last year’s second quarter.

Inflation Uptick in July: On Friday, the Bureau of Economic Analysis (BEA) will publish the Federal Reserve’s preferred inflation gauge—the U.S. Personal Consumption Expenditures (PCE) Core Price Index for July. Economists tracked by Bloomberg estimate the PCE at 2.9% year-over-year, a slight increase from 2.8% in June.

Roger Khlopin, CFA
Chief Investment Officer

Aaron Nghiem, CFA, CIMA
Senior Portfolio Manager