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Last week, the U.S. labor market was a key focus for investors, with the August nonfarm jobs report confirming signs of a weakening labor market. The unemployment rate dropped from 4.3% to 4.2%, but new jobs added showed a clear softening trend. Markets reacted to the soft jobs report with a continued sell-off, leading to a 4% decline in the S&P 500 from recent highs. The Federal Reserve's potential interest rate cuts became a focal point, with the probability of a 0.50% rate cut increasing due to the softening economic data. Treasury yields moved lower, and the yield curve un-inverted, reflecting the weaker labor market data and potential Fed rate cuts. Crude oil prices hit new lows for the year, driven by fears of a demand slowdown globally, particularly in China. Overall, markets have taken on a more defensive posture, with sectors like consumer staples and utilities outperforming amid economic uncertainty.

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Last week, the major indices were mostly flat or slightly down. Despite the volatility shock to start the month, all three indices managed to close August with slight positive gains. Economic data continues to support the potential of the Federal Reserve achieving a soft landing; last week, we saw an upward revision of Q2 GDP growth, the PCE report indicated moderating inflation, and initial unemployment claims came in below estimates. Following their recent interest rate cut, Eurozone countries continue to see inflation decrease as they reported inflation hitting its lowest level in nearly 3 years. Despite all this positive news, the S&P 500 ended the week just shy of a new all-time high while gold continued to push higher, which could be a sign of continued uncertainty in the short-term.

Last week, the capital markets were largely in a holding pattern, awaiting insights from the Federal Reserve's annual symposium in Jackson Hole, Wyoming. The much-anticipated speech by Fed Chair Powell on Friday provided some key takeaways for investors, including the expectation that interest-rate cuts will commence in September. The Fed held its policy rate steady for over a year, but recent commentary suggests sufficient progress has been made on inflation to warrant a shift in policy to focus on employment. The markets responded positively to Powell's dovish message, with stocks rallying and Treasury yields falling in anticipation of the upcoming rate cuts. However, the path to rate cuts may not be consistent, with cuts and pauses interspersed over the coming months as the Fed closely monitors future economic releases and seeks to avoid further deterioration of labor markets and economic slowdown.

Stocks posted one of their largest weekly gains of the year following the pullback in recent weeks. Last week’s rally was driven by encouraging economic data, including continued reports of moderating inflation and a positive surprise on retail sales. Initial jobless claims came in below expectations for the second week in a row, which may suggest the recent increase in the unemployment rate could be due to an increasing labor pool size and not increasing layoffs. While data continues to suggest slowing growth of the economy, last week’s releases indicated the U.S. economy remains healthy and helped ease recession fears. As the September meeting draws nearer, expectations remain high for a potential interest rate cut by the Federal Reserve, with many hoping for a signal during Fed Chair Powell's speech this week at the Jackson Hole Symposium.

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