Author: Amaury de Barros Conti, Partner | Vice President Investments

Markets experienced several developments that would ordinarily support lower interest rates: inflation data were revised downward, September payroll growth slowed considerably, and Federal Reserve commentary that was generally interpreted as suggesting less urgency to tighten policy. Yet longer-term Treasury yields moved in the opposite direction, underscoring that bond markets are responding to factors beyond expectations for Federal Reserve policy alone. U.S. equities were mixed for the week. The Nasdaq Composite gained 0.5% while the S&P 500 declined 0.3%, and the Dow Jones Industrial Average fell 1.3%, as per Bloomberg data.

Markets faced a more challenging backdrop as firmer inflation data, higher oil prices, and another rise in Treasury yields increased expectations that the Federal Reserve could continue tightening policy at its September meeting. While the underlying economy continues to show resilience through stable employment and healthy corporate earnings, investors have become increasingly focused on the impact of higher interest rates on valuations, borrowing costs, and future growth prospects. The result was a broad-based pullback across equities, particularly among smaller and more rate-sensitive companies.

Markets ended July on a stronger footing, with equities recovering from recent volatility despite a continued rise in long-term interest rates.