Macro Overview
U.S. equities surged on Friday, ignited by comments from Fed Chair Jerome Powell at the Jackson Hole symposium that were perceived as less hawkish than anticipated. The remarks sparked a significant “risk-on” rally as investors priced in a potentially softer stance on future interest rate hikes. The S&P 500, as tracked by IVV, gained a solid 1.53%. The real story, however, was in the more economically sensitive corners of the market; small caps, tracked by IJR, soared 3.84% as rate fears subsided. In a classic risk-on rotation, large-cap growth stocks (IVW), which have been recent leaders, finished slightly in the red, down -0.45% on the day.
U.S. Size & Style
Friday’s session was defined by a powerful rotation into smaller, value-oriented companies. Small-Cap Value (IJS) led all style boxes with a gain of 3.85%, closely followed by the broader Small Cap index (IJR) at 3.84%. This starkly contrasts with the lagging performance of Large-Cap Growth (IVW), which fell -0.45%. The move suggests a clear investor preference for cyclical and rate-sensitive assets following the Fed’s commentary. Despite the day’s strong performance, it’s notable that small-cap focused ETFs saw net outflows over the past week, indicating the rally may have caught some investors off-guard.
U.S. Sectors & Industries
Cyclical sectors led the market higher with conviction. The SPDR S&P Transportation ETF (XTN) was the day’s top performer, climbing 5.11%, followed closely by Homebuilders (XHB) at 5.09% and Regional Banking (KRE) at 4.94%. This leadership from interest-rate sensitive industries underscores the market’s reaction to Powell’s speech. On the other end of the spectrum, defensive sectors lagged significantly, with Consumer Staples (XLP) finishing flat at 0.00% and Utilities (XLU) posting a modest 0.54% gain. Energy (XLE) also participated in the rally, rising 2.04%, though the sector saw net outflows of nearly $150 million over the past week.
Global Thematic
The risk-on sentiment fueled strong gains in higher-beta thematic strategies. Uranium & Nuclear Energy (URA) was a standout, jumping 6.08%, while Clean Energy ETFs (TAN and PBW) rose 5.73% and 5.63%, respectively. Innovation-focused funds also had a strong day, with the ARK Innovation ETF (ARKK) gaining 4.09%. However, weekly flows painted a more cautious picture. While innovation-focused funds rallied on the day, the Infrastructure category saw the largest net inflows for the week, attracting nearly $390 million and suggesting some investors were positioning more defensively ahead of the Jackson Hole event.
Developed Markets ex-U.S.
International developed markets participated in the global rally, buoyed by a weakening U.S. dollar. The broad iShares MSCI EAFE ETF (EFA) rose 1.50%. South Korea (EWY) was the top-performing country, surging 3.22%. Strength was widespread across Europe and Asia as investors embraced risk assets globally.
Emerging Markets
Emerging market equities posted strong gains, with the iShares MSCI Emerging Markets ETF (EEM) climbing 1.99%. Commodity-producing nations were among the leaders, with Brazil (EWZ) gaining 3.43% and South Africa (EZA) adding 3.32%. China (MCHI) also had a robust session, rising 2.62%. In contrast, India (INDA) was a notable laggard, finishing the day nearly flat with a gain of just 0.02%.
Fixed Income
The bond market reflected the risk-on tone, with credit-sensitive and longer-duration assets outperforming. Convertible bonds (CWB) were the top performers, gaining 1.46%, while High Yield corporate bonds (HYG) rose 0.81%. The core U.S. Aggregate Bond index (AGG) posted a respectable gain of 0.56%. Despite the daily rally in high yield, the category saw significant outflows of $819 million over the past week, indicating some underlying caution among bond investors.
Commodities
A weaker U.S. dollar provided a tailwind for precious metals. The iShares Silver Trust (SLV) jumped 2.11%, while gold (GLD) gained 1.07%. This positive momentum came despite major gold ETFs like GLD and IAU seeing combined outflows of over $1 billion over the past week. In contrast, Natural Gas (UNG) continued its volatile slide, plummeting -3.95%.
Cryptocurrency
Digital assets saw a surge in buying, with a notable divergence in performance. Ethereum (ETHA) was the clear leader, rocketing 14.56% higher. Bitcoin (IBIT) also posted a solid gain but was much more muted in comparison, rising 4.02%. The outsized move in Ethereum suggests a renewed appetite for more speculative assets within the crypto ecosystem.
What to Watch Today
After last week’s Fed-driven rally, the market will turn its attention back to the economic data calendar. The main event today is the release of the Chicago Fed National Activity Index. This report provides a broad, weighted average of 85 monthly economic indicators. Investors will be watching closely to see if the data confirms the renewed economic optimism that fueled Friday’s rally or if it points to underlying weakness that could challenge the market’s positive momentum.
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This report is for informational purposes only and should not be considered investment advice. This report was generated with assistance from AI.
