Markets moved through a period of cautious optimism into renewed volatility in late August and early September. The rally that began in mid-August lost some steam in the final days as bond yields surged and inflation concerns resurfaced.
Markets Begin With Ease, End With Volatility
In mid-August, equity markets rallied. The S&P 500, Nasdaq, and Dow rose after softer-than-expected inflation data fueled expectations for a Federal Reserve rate cut.1 Investors leaned into big tech and AI-driven sectors, with the S&P 500 and Nasdaq hitting new highs.
However, as we entered September, markets retreated sharply. Global stock indices fell, pressured by a bond selloff triggered by worries over fiscal imbalances and continued political uncertainty. The S&P 500 dropped around 0.7%, the Nasdaq slipped 0.8%, and the Dow lost about 249 points in early trading on September 2.2 Broad-based declines reflected a shift in sentiment.
Bond Yields Rocket, Gold Climbs to Records
One of the week’s most dramatic moves was in the bond market. Long-term yields surged globally as fiscal worries mounted—especially in the U.K. and France. In the U.K., 30-year gilt yields soared to 5.72%, their highest since 1998. In the U.S., 30-year Treasury yields neared 5% amid concerns about budget shortfalls and policy uncertainty.3 As yields rose, investors migrated into traditional safe havens—gold surged to a record high of over $3,540 per ounce , underscoring market jitters.
Federal Reserve: Softness in Data Paves Way for Easing
The Fed didn’t meet during this period, but Fed Chair Jerome Powell’s speech at Jackson Hole resonated throughout. Powell struck a cautious tone, signaling openness to a rate cut as early as September given signs of labor market softening and persistent tariff pressures—while reaffirming the Fed’s data-driven approach and its independence amid political tensions.4
This followed August inflation data showing the PCE index steady at 2.6% year-on-year, and core PCE rising to 2.9%—a four-month streak of increases. Nonetheless, indicators of weakening consumer activity and labor dynamics strengthened the case for easing policy . As of the end of August, markets priced in a 90% probability of a 0.25% Fed funds rate cut at the September meeting.5
Commodities & Currencies
• Apart from gold’s dramatic run, oil prices were underscored by geopolitical factors. Brent and WTI briefly rebounded in August but pulled back as demand signals remained muted and trade uncertainty persisted .
• The U.S. dollar strengthened overall, supported by rising yields and safe-haven flows. Other key currency moves included pressure on the pound amid UK fiscal stress, while the euro and yen also felt the ripple effects of bond market turbulence.
Investor Takeaway
Markets began the period buoyed by hopes of easing Fed policy, but the shift came swiftly as bond yields spiked and fiscal instability grabbed the spotlight. With gold surging, equities retreating, and the yield curve signaling caution, the outlook remains fragile. Powell’s data-driven approach suggests that the upcoming Fed meeting could bring relief—but fiscal policy risks and rating uncertainty may temper optimism. In the coming weeks, keeping tabs on jobs, inflation data, and central bank signals will be essential as the seasonal “September effect” adds pressure to markets.
- https://www.thetimes.co.uk/article/live-latest-news-uk-companies-ftse-100-shares-f26bc2rr0 ↩︎
- https://www.wsj.com/finance/investing/global-stocks-markets-dow-news-09-02-2025 ↩︎
- https://www.marketwatch.com/story/treasury-yields-jump-as-u-k-government-bonds-are-the-latest-casualty-of-budget-deficit-angst-caf ↩︎
- https://www.reuters.com/commentary/breakingviews/powells-fed-finale-self-unraveling-consensus-2025-08-22 ↩︎
- https://www.theguardian.com/business/live/2025/aug/22/asia-shares-ftse-stocks-markets-jackson-hole-speech-us-federal-reserve-jerome-powell-trump-business-live ↩︎
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