• Markets close higher as bond yields pull back – U.S. equity markets ended higher on Thursday, with consumer discretionary and financials leading gains. The 10-year Treasury yield finished near 4.77% after Federal Reserve Governor Chris Waller indicated that he would support holding interest rates steady later this month, provided upcoming inflation data do not surprise to the upside. In response, futures markets raised the implied likelihood of the Fed leaving rates unchanged this month to roughly 50%, up from 37% yesterday. Internationally, Asian equities finished mixed overnight, while European markets advanced. In energy markets, WTI oil extended its recent rise, trading near $92 per barrel amid continued disruptions in the Strait of Hormuz. The U.S. dollar weakened against most major currencies, consistent with the decline in Treasury yields.
   
• Productivity growth holds steady as labor-cost pressures ease – Nonfarm business sector productivity, which measures output per hour worked, was unchanged from the preliminary estimate, increasing at a 1.4% annualized rate in the second quarter, in line with expectations. This marked an improvement from the first quarter's 0.8% gain. Hourly compensation rose 2.6% from a year earlier, providing continued income growth that should help support consumer spending and the broader economy. Meanwhile, unit labor costs, which measure compensation adjusted for changes in productivity, were revised lower to a 1.2% annualized increase, slightly below expectations for a 1.3% gain. In our view, the combination of steady productivity growth and moderating unit labor costs is encouraging for the inflation outlook. If sustained, these trends could help businesses to absorb wage increases without fully passing along these costs to consumers through higher prices.
   
• Jobless claims edge higher but remain low – Initial jobless claims rose modestly to 206,000 this past week, slightly above expectations for 205,000. Continuing claims, which measure the total number of people receiving benefits, also increased to 1.78 million, but remained below forecasts for 1.79 million. Together, the figures suggest that layoffs remain limited and labor-market conditions are relatively healthy. Friday's employment report should provide a more comprehensive assessment of the labor market. Consensus estimates call for a gain of 65,000 jobs in August and an increase in the unemployment rate to 4.2%.

Brian Therien, CFA;
Investment Strategy

^{Source for all data: FactSet.}

• Stocks rise as oil and yield rally slows- Stocks rebounded today after a difficult start to September, with small-caps outperforming, as the sharp rise in oil prices and Treasury yields showed signs of losing momentum. Despite the first advance in four days, investor sentiment remains somewhat cautious amid elevated geopolitical tensions following a new wave of U.S. strikes on Iran, which recently helped push oil prices to their highest level since July. Diesel prices remain a key area of focus, hovering near their April highs and potentially adding to near-term inflation pressures. On the economic front, the August ADP private payrolls report showed job growth of 38,000, slightly below expectations, with education and health services accounting for much of the increase. In corporate news, Dell shares surged 15% after the company reported strong quarterly results, providing another encouraging sign that AI-related spending remains robust.
   
• Yields and the Fed remain a key focus - Rising government bond yields have been the primary challenge for markets amid solid economic growth and strong corporate earnings, as higher rates continue to put pressure on equity valuations. The 10-year Treasury yield has edged slightly lower today after reaching 4.8% yesterday, its highest level since 2023. We believe several factors have contributed to the rise in yields, including uncertainty surrounding the Fed's policy path and increased bond issuance from both public and private borrowers. More recently, however, investor concerns have shifted toward the potential inflationary impact of higher energy prices. We expect that attention over the next two weeks will be centered on economic data releases that could influence the Fed's decision at its September 16-17 meeting. Last week, Fed Chair Kevin Warsh delivered a hawkish message, noting that economic growth remains solid, the labor market is stable, and inflation is still too high, suggesting that the Fed still has "work to do." We believe Friday's employment report, and perhaps even more importantly next week's inflation data, will play a significant role in determining whether policymakers decide to raise rates in September. Following Warsh's remarks, futures markets have increased the implied probability of a September rate hike to roughly 67%, up from about 35% before his speech.
   
• Navigating seasonal headwinds with solid fundamentals - Historically, September has been the weakest month of the year for stocks, generating both the lowest average return and the lowest probability of positive performance. This seasonal pattern can be amplified during Midterm Election years, when political uncertainty often weighs on investor sentiment. We believe context, however, is important. Periods of September and October weakness have typically coincided with deteriorating economic conditions or markets that were already under pressure, neither of which appears to characterize the current environment. Moreover, the historical Midterm Election effect has generally been short-lived, with markets often regaining momentum as election-related uncertainty fades. Underlying fundamentals remain constructive, in our view. AI-related investment continues to help support corporate spending, earnings growth remains robust, and current estimates point to solid U.S. economic activity in the third quarter. At the same time, credit spreads remain tight and financial conditions are accommodative. While seasonal headwinds merit attention, they are not sufficient on their own to derail the broader market uptrend, in our view.

Angelo Kourkafas, CFA;
Investment Strategy

^{Source for all data: Bloomberg.}

• Rising bond yields and renewed geopolitical tensions weigh on sentiment to begin September – U.S. equity markets closed lower on Tuesday, with renewed upward pressure on bond yields weighing on investor sentiment, in our view. The 10-year Treasury yield rose to a year-to-date high of approximately 4.8%, while the 30-year Treasury yield climbed to just below 5.3%. The rise in government bond yields was not isolated to the U.S. Japan’s 10-year government bond yield reached 3% for the first time since 1996, while yields in the United Kingdom and the euro area also moved broadly higher. From a market-leadership perspective, health care, utilities, and energy outperformed the broader market, while cyclical sectors such as industrials, materials and consumer discretionary were among the laggards. Contributing to the rise in bond yields and the risk-off tone in equity markets was renewed upward pressure on oil prices. Two oil tankers were reportedly attacked while transiting the Strait of Hormuz late Monday, followed by additional U.S. strikes against Iranian targets on Tuesday. In response to the attacks and the broader escalation in regional tensions, WTI crude oil rose by over 5%, finishing just above $90 per barrel.
   
• Global rise in bond yields weighs on sentiment – Rising bond yields were back in focus on Tuesday, with government bond yields across the globe moving higher and back near multi-year highs. The 10-year Japanese government bond yield reached 3%, its highest level since 1996, while 10-year government bond yields in Germany, the United Kingdom, and France are also near multi-year highs. U.S. yields followed suit, with the 10-year Treasury yield rising to a year-to-date high of approximately 4.8% today. As we outlined in a recent Weekly Market Wrap, we believe several factors are contributing to the rise in global bond yields, including elevated corporate issuance, large and persistent U.S. budget deficits, uncertainty around inflation, expectations for additional interest-rate hikes by global central banks, and greater compensation demanded by investors for holding longer-maturity bonds amid an uncertain backdrop. We expect these factors to remain prevalent through the remainder of the year, and we believe the 10-year U.S. Treasury yield is likely to trade between 4.5% and 5%. Although yields that are higher than those of recent years help improve the potential for fixed-income returns over a multi-year horizon, our expectation that yields will remain elevated through year-end suggests limited scope for meaningful price appreciation in investment-grade bonds over the near term. Against this backdrop, we recommend that investors consider maintaining a neutral duration posture, or interest-rate exposure, relative to the U.S. investment-grade benchmark. At the same time, we do not expect the rise in bond yields to derail what we continue to view as a constructive backdrop for equities, supported by robust corporate profit growth and steady economic activity. Accordingly, we recommend that investors consider overweighting stocks relative to bonds, with a particular emphasis on U.S. large- and mid-cap stocks and emerging-market equities.
   
• Labor demand and manufacturing activity in focus – Labor-market data was in focus today, with the July JOLTS job openings reading coming in at just under 7.3 million, slightly below consensus expectations. After a period of historically tight labor-market conditions in the years immediately following the pandemic, we would characterize current labor-market conditions as broadly balanced, with the number of job openings modestly exceeding the number of unemployed workers through the end of July. Importantly, we believe the labor market remains supportive of household spending and economic activity, with hiring continuing at a modest pace and layoffs remaining limited. Given these more balanced conditions, we also do not view the labor market as a meaningful source of inflationary pressure at present. In addition to the labor-market data, the August ISM Manufacturing PMI provided an update on the goods-producing side of the economy. The headline index edged down to 54.6 from 55.6 in July but remained comfortably above the expansion-contraction threshold of 50, marking the eighth consecutive month of expansion. Looking beneath the headline, the production subindex was little changed at a healthy 58.3, compared with 58.5 in July. Meanwhile, the forward-looking new orders component declined to 53.7 from 56.7 but remained in expansionary territory, pointing to continued growth in demand, albeit at a more moderate pace. Perhaps the fly in the ointment in today’s report was the prices index, which remained elevated and unchanged from July at 71.1. This suggests to us that inflationary pressures remain in the pipeline, potentially reflecting, in part, the rise in oil prices over the past month. Taken together, we view today’s batch of economic data as evidence that labor-market conditions remain broadly balanced, while manufacturing activity continues to expand at a healthy pace following a prolonged period of stagnation from late 2022 through 2025. While upside risks to inflation remain, we expect healthy economic growth through year-end.

Brock Weimer, CFA;
Investment Strategy

^{Source for all data: FactSet.}

• Stocks edge lower following escalation in the Middle East – U.S. equity markets closed modestly lower on Monday following reports that U.S. forces struck Iranian targets over the weekend, marking the first exchange of fire between the two countries since late July. Oil prices traded higher in response, while the equity-market reaction was relatively contained, with the major U.S. averages posting modest declines on the day. For the month, the S&P 500 gained approximately 2.6%, defying August’s historically weak seasonal pattern. Overseas, Asian markets were mixed overnight, while European markets traded mostly lower. In bond markets, longer-term Treasury yields closed higher, with the 10-year yield ending the day near 4.75%. Shorter-term yields were little changed, with the 2-year yield finishing around 4.34%.
   
• Markets look past escalation in the Middle East – Geopolitical tensions escalated over the weekend, with U.S. forces striking Iranian targets that U.S. officials said were preparing to deploy sea mines in the Strait of Hormuz. Iran retaliated by launching missiles at U.S. military bases in Jordan, although most of the incoming missiles were reportedly intercepted. The military action marked the first direct exchange of fire between the two sides since late July. Oil prices moved higher in response, while the reaction in equity markets was more contained. Although equity markets experienced a brief period of volatility at the onset of the conflict this spring, with the S&P 500 falling roughly 9% from its previous all-time high, stocks have since proven resilient in the face of continued uncertainty, with U.S. and international equity markets firmly higher year-to-date. While the path ahead in the Middle East remains uncertain, we continue to believe the outlook for global equity markets is constructive, supported by robust profit growth and steady economic activity. Against this backdrop, we recommend that investors consider overweighting U.S. large- and mid-cap stocks, along with emerging-market equities.
   
• Labor-market data in focus this week – Investors will have a busy week of labor-market data to digest, beginning tomorrow with the July JOLTS job-openings report, followed by ADP private-payroll data on Wednesday. Friday will bring the August nonfarm-payrolls and unemployment report, with markets expecting payrolls to have risen by 65,000 and the unemployment rate to have edged higher to 4.2%. Following Fed Chair Kevin Warsh’s hawkish-leaning comments on Friday, futures markets have moved to price in roughly a 65% probability of an interest-rate hike at the September meeting, up from approximately 35% before his remarks. In our view, the August labor-market and inflation data released before the September 16 meeting will be important in shaping the Fed’s decision. With inflation having remained above the Fed’s target since 2021 and Chair Warsh characterizing labor-market conditions as consistent with full employment, the Fed’s focus will likely center on the inflation side of its dual mandate. While a September hike is not a foregone conclusion, we expect the Fed to have limited tolerance for meaningful upside inflation surprises and to require sustained evidence of moderating core price pressures to remain on hold.

Brock Weimer, CFA;
Investment Strategy

^{Source for all data: FactSet.}

• Stocks edge lower following hawkish remarks from Fed Chair Warsh – U.S. equity markets closed lower Friday, reversing modest opening gains after Fed Chair Kevin Warsh emphasized that inflation remains uncomfortably high for policymakers. Markets interpreted his remarks as hawkish, with Treasury yields moving higher, particularly at the shorter end of the yield curve. The 2-year Treasury yield gained 0.12 percentage points, finishing at 4.35%, while the 10-year yield rose to 4.72%. Futures markets also raised the implied probability of a September rate hike from roughly 35% to around 55% following Warsh’s remarks. Despite Friday’s modest declines, stocks were broadly higher for the week, supported by strong technology-sector performance following several upbeat earnings announcements. Overseas, Asian markets finished mixed, while European markets were mostly higher after the eurozone Economic Sentiment Indicator improved in August. In commodities, oil prices were little changed, with WTI crude oil closing near $83 per barrel.
   
• Odds of a September rate hike rise following Fed Chair Warsh’s remarks – Monetary policy was in focus Friday as investors assessed Fed Chair Kevin Warsh’s remarks on the economic outlook and conduct of monetary policy at the Fed’s annual Jackson Hole Economic Policy Symposium. Warsh characterized underlying economic activity as solid, supported by robust business investment, steady consumer spending and labor-market conditions consistent with full employment. Perhaps providing some clarity following the ambiguity surrounding the July meeting, Warsh also reaffirmed that 2% inflation, as measured by the personal consumption expenditures (PCE) price index, remains the Fed’s “firm and fixed” target. On inflation, Warsh noted that price pressures remain above the Fed’s objective across a range of measures. He emphasized that policymakers must be confident that underlying inflation is moving toward 2% “clearly and at sufficient speed,” adding that “otherwise, we have work to do.” Markets interpreted the remarks as hawkish, with short-term Treasury yields rising and the market-implied probability of a September rate hike increasing from roughly 35% on Thursday to around 55% following the speech. Before the September meeting, policymakers will receive another employment report and the August consumer price index reading, both of which will likely factor into the decision. However, with inflation having remained above the Fed’s 2% target since 2021, we believe policymakers have limited tolerance for further upside inflation surprises.
   
• Equity markets navigating well through a seasonally weak period – The S&P 500 is on pace for a solid monthly gain in August, rising more than 3% through yesterday’s close. That strength comes during what has historically been a softer period for stocks. Since 1970, August and September have generated average returns of 0.16% and -0.82%, respectively, with positive returns 57.1% and 44.6% of the time.* By comparison, the other 10 months have returned an average of 0.96%, with positive returns roughly 62.5% of the time.* After a strong first eight months of the year, a period of consolidation would not be surprising, in our view, particularly as the market enters the seasonally weaker month of September and the midterm elections approach. Nevertheless, we believe robust profit growth and healthy economic activity continue to provide a supportive fundamental backdrop. As a result, we continue to favor stocks over bonds, particularly U.S. large- and mid-cap stocks and emerging-market equities.

Brock Weimer, CFA;
Investment Strategy

^{Source for all data not cited: FactSet.
Source for data cited:*FactSet, Edward Jones.}