MARKET UPDATE
The Intertropical Convergence Zone of the oceans is located between 5 degrees north and 5 degrees south. Here, the northeast and southeast trade winds converge, resulting in very calm and light surface winds. Due to the becalming of ships, sailors dubbed this region “the doldrums.”
Last week, markets wandered into the same “doldrums” ahead of Jerome Powell’s key speech at Jackson Hole. The speech quickly put the wind back in the markets’ sails due to increased expectations of a possible interest rate cut on September 17. Before the speech, profit-taking in the tech sector had been weighing on markets because of the recent rally and anticipation of Nvidia’s key earnings reports this week. Additionally, investors are awaiting the next U.S. inflation report, with the PCE data set to be released on Friday.
Given the recent pick up in 3-month annualized core inflation, markets will be looking for data to confirm the tone of Mr. Powell’s Jackson Hole speech regarding potential interest rate adjustments. If inflation surprises to the upside, investors may quickly reverse their outlook for a potential easing policy in September.
Historically, September has been a weak month for investors. If current data clashes with expectations, this historical trend may repeat itself, as shown in the chart below.
Entering A Seasonally Weak Period of Monthly Returns (Average Monthly Returns of S&P 500)
With summer drawing to a close, the market winds are expected to pick up looking into the back half of 2025.
