Market Recap – Friday, August 22, 2025
Markets Rally as Powell Turns Dovish
Stocks surged Friday, snapping a five-day losing streak as Fed Chair Jerome Powell’s Jackson Hole speech struck a more dovish tone than anticipated. The Dow rose 1.89%, S&P 500 climbed 1.52%, Nasdaq added 1.88%, and Russell 2000 jumped 3.86%, led by a sharp rally in small caps and cyclicals. Risk sentiment was buoyed by rising expectations of a September rate cut, with futures now pricing in a 90% probability, up from 75% earlier in the day.
Leadership came from builders, semiconductors, travel & leisure, machinery, and regional banks, all beneficiaries of a more accommodative policy stance. Consumer staples lagged, the only S&P sector finishing in the red. Bond yields declined across the curve, particularly at the short end, with the 2Y yield down ~10bps. The dollar fell 1%, gold gained 1.1%, and Bitcoin futures surged 4.1%.
Powell's Take
Powell acknowledged that the “shifting balance of risks” may require policy adjustment, highlighting rising downside risks to employment and the slowing pace of GDP growth. While reiterating that tariffs are lifting prices, he called the effects likely “short-lived.” The dovish undertone helped markets shake off earlier hawkish Fedspeak and weak labor data.
AI Under Scrutiny, Nvidia Hit by China Pressure
Nvidia reportedly paused production of its H20 chips due to soft China sales and growing restrictions, reigniting concerns over U.S.-China tech decoupling. Meanwhile, a new MIT study found that 95% of companies spending heavily on generative AI have yet to see meaningful business returns, adding to concerns about inflated AI capex across the tech space. Meta is reportedly freezing AI hiring.
Data Recap
August flash PMIs surprised to the upside, with composite activity at a 2025 high (55.4) and manufacturing back in expansion (53.3). However, prices also accelerated, with tariff-related input costs being passed on to customers. July existing home sales beat expectations, but NAHB builder sentiment slipped, with affordability and supply constraints continuing to weigh on new demand. Jobless claims came in above consensus, while the Philly Fed index posted its first negative new orders reading since April.
Retail Roundup
Retail earnings reflected continued consumer resilience, though a clear bifurcation remains. Off-price players like TJX and Ross saw strong trends into back-to-school season, while Walmart missed on EPS but raised FY guidance. Targetdisappointed with a CEO pick that failed to inspire confidence. Home improvement players Home Depot and Lowe’sreiterated guidance despite a mixed macro backdrop.
Earnings Movers
UI +30.9%: Beat Q4, raised dividend, and launched $500M buyback.
ZM +12.7%: Big beat, raised FY guide, strong Enterprise momentum and AI traction.
GOOGL +3.2%: Signed $10B cloud deal with Meta.
BJ -8.5%: EPS beat but comp sales miss.
INTU -5%, WDAY -2.8%: Guidance underwhelmed despite solid quarters.
Macro & Policy Watch
U.S. and EU struck a trade framework agreement, reducing select tariffs and signaling efforts to stabilize global commerce. In Washington, political pressure on the Fed intensified after Trump called for Governor Cook’s resignation. Meanwhile, bond flows remain robust, with $97B in inflows to global bond funds over the past month, as investors continue to chase yield ahead of anticipated rate cuts.
Here’s Our Take
Markets welcomed a dovish tilt from Fed Chair Powell at Jackson Hole, sending stocks sharply higher and pushing September rate cut odds back above 90%. The rally was led by small caps, regional banks, semis, and consumer cyclicals — sectors most sensitive to falling rates. Powell acknowledged growing labor market fragility and a need to rebalance risks between inflation and employment, signaling the Fed is increasingly open to easing if economic data weakens further. Treasury yields fell, particularly at the front end, while curve steepening underscored persistent concerns about fiscal risks and political interference in monetary policy.
While inflation hasn’t been defeated — tariff-driven cost pressures and elevated PMI price data remain key concerns — the market appears to be focusing more on softening growth and labor signals. Retail earnings painted a mixed picture, with discounters like Walmart under pressure from margin headwinds, while off-price retailers continued to outperform. In tech, sentiment on AI remains fragile amid hiring freezes and geopolitical uncertainty. With a busy macro week ahead — highlighted by Friday’s PCE inflation print — investors are hoping for just enough softness in the data to support the case for cuts without signaling a hard landing. Until then, the bias may tilt cautiously higher, with rate-sensitive and domestically oriented names likely to see the most support.
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