Last week, markets had their best week in about five weeks. U.S. market sentiment was positive, largely built on expectations that the Federal Reserve will begin cutting interest rates next week. Nasdaq benefitted from strong performance in technology and growth stocks, pushing it to record highs:

• Nasdaq Composite Index closed at 22,141.10, up 0.44% on the day, 2.03% higher for the week and 2.12% higher over the month.
• NYSE Composite Index closed at 21,374.32, down 0.74% on the day, 1.13% higher for the week and 3.21% higher over the month.
• S&P 500 Index closed at 6,584.29, down 0.05% on the day, 1.59% higher for the week and 2.15% higher over the month.
• Dow Jones Industrial Average EW closed at 14,245.90, down 0.70% on the day, 0.39% higher for the week and 1.98% higher over the month.

European stock markets ended Friday on a softer note:

• Stoxx Europe 600 Index closed at 554.84, down 0.09% on the day, 1.03% higher for the week and 1.27% higher over the month.
• DAX Performance Index closed at 23,698.15, down 0.02% on the day, 0.43% higher for the week but 1.36% lower over the month.
• CAC 40 Index closed at 7,825.24, up 0.02% on the day, 1.96% higher for the week and 0.93% higher over the month.

Stocks across Asia rode a wave of optimism, supported by expectations that the U.S. Federal Reserve will begin cutting interest rates, plus strong momentum in tech and AI-related sectors. Australia’s ASX also gained, though less dramatically, trending upward in line with regional positive sentiment

• Nikkei 225 Index closed at 44,768.12, up 0.89% on the day, 4.07% higher for the week and 4.80% higher over the month.
• Hang Seng Index closed at 26,388.16, up 1.16% on the day, 3.82% higher for the week and 5.68% higher over the month.
• Shanghai Composite Index closed at 3,870.60, down 0.12% on the day, 1.52% higher for the week and 5.58% higher over the month.
• Australia S&P/ASX 200 Index closed at 8,864.90, up 0.68% on the day, 0.07% lower for the week and 0.18% lower over the month.

Stock Market Snapshot: Year-to-Date Performance Review

The standout performer is the Hang Seng Index, posting an impressive 31.55% year-to-date, far ahead of its global peers. This strong rebound reflects renewed optimism around Chinese equities and investor confidence in policy support.

The DAX Performance Index also shows notable strength with 19.03%, making it one of the top-performing developed market indices, driven by resilience in the German economy and industrials.

Among US benchmarks, the Nasdaq Composite (14.66%) leads, boosted by continued momentum in technology and growth stocks, while the S&P 500 (11.95%) and NYSE Composite (11.92%) show healthy double-digit gains. The Dow Jones EW (8.86%) trails slightly, reflecting its broader weighting.

In Asia, Nikkei 225 (12.22%) remains solid, supported by a weaker yen and strong corporate earnings, while the Shanghai Composite (15.48%) has also outperformed, showing a robust recovery.

On the weaker side, CAC 40 (6.02%) and Australia’s S&P/ASX 200 (8.65%) lag behind other indices, reflecting more subdued investor sentiment in those regions.

• The US Dollar Index (DXY) closed at 97.61, up 0.10% on the day, down 0.13% over the week, 0.44% lower on the month, and 10.00% lower year-to-date.
• Brent Crude Oil closed at $66.91 per barrel, up 1.02% on the day, 2.16% higher over the week, 1.20% higher on the month, and 2.16% higher year-to-date.
• Gold closed at $3,642.37 per ounce, up 0.29% on the day, 1.39% higher over the week, 8.79% higher on the month, and 38.79% higher year-to-date.
• Silver closed at $42.16 per ounce, up 1.54% on the day, 2.93% higher over the week, 11.21% higher on the month, and 45.99% higher year-to-date.
• The 2-Year U.S. Treasury yield closed at 3.56%, up 1.00 basis point on the day, 4.30 bps higher over the week, 17.90 bps lower on the month, and 69.00 bps lower year-to-date.
• The 10-Year U.S. Treasury yield closed at 4.07%, up 4.00 basis points on the day, 0.70 bps lower over the week, 22.40 bps lower on the month, and 50.60 bps lower year-to-date.

This week, investors are closely watching the Fed’s upcoming policy rate decision, updated macroeconomic projections, and Chair Powell’s press conference, all of which are scheduled for Wednesday.

Markets largely expect a 25-bps cut in the fed funds rate to 4.00%–4.25%, though some anticipate a larger 50-bps reduction.

According to the Fed’s latest macroeconomic projections released in June, a total 50-bps rate cut is expected in 2025, the 50-bps cut forecast for 2026 was revised down to 25 bps, and a 25-bps rate cut is projected for 2027.

A cut could boost U.S. equities, particularly interest-rate-sensitive sectors like technology and consumer discretionary, while a smaller or more cautious reduction may temper market optimism.

Recent data highlight a faster-than-expected cooling in the labor market, though tariff-related price pressures have yet to significantly affect inflation. On the data front, retail sales for August are expected to rise 0.3%, extending a three-month streak of gains, while industrial production has likely stalled, pointing to slowing manufacturing activity that could weigh on investor sentiment.

Other important U.S. economic releases this week include trade prices, housing starts and permits, business inventories, the NAHB housing index, net TIC flows, and regional manufacturing surveys from New York and Philadelphia. These data releases will provide further insights into economic momentum and guide sector-specific performance in equities.

Global developments will also be in focus. The Bank of Canada is expected to cut rates by 25-bps, reflecting weakness in jobs, investment, and income growth, which could weaken the Canadian dollar and support U.S. exporters.

In contrast, Brazil is likely to keep borrowing costs unchanged after a 450-bps tightening cycle that began in September 2024, signaling stable conditions in emerging markets.

Key data from Canada (inflation, retail sales, housing starts) and Brazil (unemployment), along with Argentina’s GDP, could further shape investor sentiment and capital flows into U.S. markets.

In the UK, markets are focused on the Bank of England’s policy decision, with interest rates expected to remain steady after last month’s cut. August inflation is projected to rise to 3.9%, the highest since January 2024, while unemployment is seen holding at 4.7%, its peak since mid-2021. Retail sales are forecast to post a third consecutive gain, offering some relief amid sluggish growth.

In Germany, the ZEW sentiment index is set to decline for a second month, highlighting fragile business confidence, while producer prices may record their sharpest drop since May 2024. Across the euro area, industrial output is expected to rebound, and final CPI data should confirm inflation at 2.1%. In France, the manufacturing climate index is likely to slip to an 11-month low.

Markets will also watch Norway’s Norges Bank policy decision, along with key data releases from Germany, Italy, Switzerland, and the broader Euro Area which could influence regional market sentiment and capital flows.

Market volatility may be expected in Europe this week as investors react to central bank decisions, inflation data, and industrial output. Sectors tied to manufacturing, exports, and consumer demand will likely be most sensitive.