After three consecutive weeks of gains, U.S. equity markets pulled back as investors contended with another surge in long-term Treasury yields, rising energy prices, and renewed concerns about fiscal deficits. Importantly, we believe the weakness was driven more by valuation pressures from higher interest rates than by deterioration in economic fundamentals. In our view, the primary challenge for markets remains the rapid repricing occurring in long-term bond markets, where investors are demanding higher compensation for inflation, fiscal, and supply-related risks.

Markets continued their advance as evidence of moderating inflation appeared to outweigh concerns about a slowing consumer and ongoing geopolitical pressures. While major large-cap indices were little changed, market leadership broadened beneath the surface, with small- and mid-cap stocks outperforming as investors grew more confident that the Federal Reserve may remain on hold at its September meeting. The combination of easing inflation, resilient earnings growth, and expanding market participation remains constructive for risk assets during the period, although higher energy prices, weakening consumer trends, and other market risks warrant close monitoring.

Markets delivered their strongest weekly performance since April as investors responded to a softer-than-expected employment report and growing confidence that the Federal Reserve may remain on hold through its September meeting. While geopolitical tensions in the Middle East and inflation concerns remained important themes, the combination of moderating labor market conditions, resilient corporate earnings, and continued strength in AI-related investment helped support risk assets. The market's response suggests investors focused more on the prospect of stable monetary policy than on the risk of additional rate hikes.