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As summer draws to a close, investors are returning to a U.S. stock market that remains on a hot streak after four consecutive months of gains. This impressive rally has been driven by two key factors: soaring demand for all stocks related to artificial intelligence (AI) and growing expectations that the Federal Reserve will soon cut interest rates. But starting on Monday, September 1st, as a historically volatile season begins, will this momentum continue?
The AI Race: Expectations Reach for the Sky
The AI phenomenon is a key driver of recent market performance. All eyes were on NVIDIA, the tech giant at the heart of the AI boom, as it announced its latest earnings. Despite robust year-over-year revenue growth of 56%, the stock’s reaction was surprisingly muted. This is a clear signal that investors are setting extremely high standards for these companies. Even with strong results, the growth ceiling has been set so high that anything less than spectacular results is considered a disappointment.
Nevertheless, the underlying trend remains strong. Major tech companies like Amazon, Google, Meta, and Microsoft are collectively pouring an estimated $600 billion into AI infrastructure. This investment isn’t limited to a few companies; it’s having a real impact on the broader U.S. economy. In the second quarter, investment in computer hardware rose by 61%, and software investment grew by 26%, marking the largest quarterly gain in 22 years. This confirms that the AI revolution is far from over.
Global Monetary Policies: Central Banks in America, Europe, and England
While AI has captured much of the spotlight, shifting expectations about global monetary policies are driving a healthy change in the market. The growing belief that major central banks, such as the Federal Reserve and the European Central Bank, will begin cutting interest rates has renewed interest in previously neglected sectors.
The Federal Reserve
Changing expectations regarding the Federal Reserve’s policy continued to influence U.S. markets. The increasing belief that the central bank will begin cutting rates has brought attention back to previously neglected sectors. For example, interest rate-sensitive small-cap stocks rose by 7.5% in August, their best month in terms of relative performance in nine months. This indicates a broadening of the market rally beyond just a handful of tech giants. With the U.S. economy remaining on a solid footing, a more flexible Fed policy could provide significant support to stocks.
The European Central Bank (ECB)
On the other side of the Atlantic, the Eurozone’s largest economies are showing signs of fading inflation, increasing the likelihood of future rate cuts. Data revealed that inflation in Germany rose slightly, while it remained stable in Italy and Spain and slowed in France. This data strengthens the ECB’s argument for easing its monetary policy, even though some officials remain cautious.
The Bank of England (BoE)
In Britain, the Bank of England took a bold step by cutting interest rates to 4%, its fifth such decision in the past year. This decision comes even though the UK’s inflation rate remains well above the bank’s 2% target. It reflects the bank’s conviction that inflationary pressures will subside in the medium term, especially with a cooling labor market and a rising unemployment rate. However, there is a clear split within the Monetary Policy Committee, with Deputy Governor Clare Lombardelli and Chief Economist Huw Pill voting against the cut. Governor Andrew Bailey noted that there is uncertainty about the pace of future reductions.
Political Developments and Their Impact on Markets
Political events have become a major driver in global financial markets, particularly in the United States, France, and Britain.
Federal Reserve Independence
President Donald Trump’s efforts to remove Federal Reserve Governor Lisa Cook, appointed by former President Joe Biden, are causing deep concern. Trump claims Cook provided fraudulent information regarding mortgage loans, while Cook asserts she will not resign and intends to sue the administration.
This dispute is unprecedented in the recent history of the U.S. central bank. Analysts and seasoned investors warn that politicizing the Fed could undermine its credibility and lead to severe long-term economic consequences, noting that similar steps in other countries have led to higher inflation, weaker currencies, and reduced foreign direct investment. While markets might initially rally on rate cut expectations, the erosion of the central bank’s independence could ultimately shake investor confidence.
Political Crisis in France
In France, a escalating political crisis has led to a decline in the Eurozone’s economic confidence index. Investor sentiment has weakened in Germany, Italy, and Spain, while remaining relatively stable in France. This decline is partly due to the threat of a no-confidence vote against Prime Minister François Bayrou’s government on September 8th.
Investors are closely monitoring the spread between French and German government bond yields, a key indicator of political risk. This spread has widened to 79 basis points, reflecting investor concerns about political instability and the possibility of new legislative elections. The collapse of the government is expected to lead to increased scrutiny of fiscal discipline across the Eurozone.
Economic Policies in Britain
In Britain, economic data revealed a slowdown in GDP growth, with the central bank expecting it to be only 0.1% in the second quarter. However, there are forecasts that growth will rise to 0.3% in the third quarter, partly supported by a new trade agreement with the United States. Nevertheless, the British economy faces challenges due to continued high savings rates by consumers, who remain hesitant to spend despite rising wages.
Key Asset Performance: August 25 – 29, 2025
The last week of August saw frantic activity as markets reacted to all signals, from Fed cues to shifts in geopolitical tensions. Here’s a look at the performance of key assets.
U.S. Dollar (USD) and Major Currencies
The U.S. dollar had a volatile week. After an initial rise, bolstered by a slight increase in Treasury yields and expectations of a hawkish Fed policy, it suddenly reversed course. This reversal came after a flexible speech by Federal Reserve Chairman Jerome Powell, who indicated that a September rate cut was plausible if economic data, particularly from the labor market, showed weakness. As a result, the U.S. Dollar Index (DXY) ended the week lower at 97.732, retreating from its peak and on track for a 2% monthly decline. The Euro and the British Pound gained against the dollar, with the Euro on track for a 2% monthly gain. The Swiss Franc also strengthened, reaching a one-month high against the dollar amid safe-haven demand.
Treasury Yields
U.S. Treasury yields were also affected by the shifting Fed expectations. The 10-year Treasury yield hovered around 4.22%, while the 30-year yield was close to 4.90%. The market is now pricing in an 89% chance of a 25-basis-point rate cut at the September 17th Fed meeting, a sentiment that kept yields in check despite some surprisingly strong economic data.
Gold and Silver Performance
Gold saw a notable rise, climbing 1.43% for the week to close at $3,364.190 per ounce, its highest level since mid-June. This rally was driven primarily by a weaker dollar and increasing rate cut expectations, which make the non-yielding metal more attractive. Gold is also benefiting from safe-haven demand due to geopolitical tensions and concerns about the Fed’s independence. Silver performed even better, reaching its highest level since September 2011 and rising 5.9% for the month. Its rally was driven by the same factors as gold, along with strong industrial demand from the green energy sector.
At the start of Monday, September 1, 2025, gold saw a slight dip, with the price per ounce at $3,444.435, down by $3.000 or 0.09%. This comes after it reached a new high near $3,453.130, with a daily trading range between $3,442.390 and $3,453.130.
Crude Oil: Political Tensions and a Changing Global Trade Map
Crude oil markets showed an interesting performance of alternating strength and weakness. Oil prices initially fell on hopes of easing global tensions but then recovered sharply. West Texas Intermediate (WTI) crude oil prices rose 2.89% for the week to close at $63.74 per barrel. The rebound was driven by a weaker dollar, which made oil cheaper for international buyers, and an unexpected drop in U.S. oil inventories, signaling strong demand.
These developments come at a time when global oil trade is undergoing radical changes, driven in particular by tensions between the United States and India. The U.S. has announced new tariffs of up to 50% on some Indian goods, claiming that India is using U.S. dollars to buy discounted Russian oil, which contributes to funding Russia’s “war efforts.”
This U.S. stance comes despite India, the world’s third-largest oil consumer, justifying its decision to purchase discounted Russian oil as necessary to maintain stable and affordable energy prices for its citizens. Analysts have noted that India may have saved billions of dollars thanks to these deals, but the new U.S. tariffs could erase these gains. If India decides to stop buying Russian oil, global oil supply could shrink, potentially causing crude oil prices to rise to nearly $100 per barrel, fueling global inflation.
Oil prices continued to trade within a narrow range at the beginning of the week, with light crude oil futures falling slightly to $63.95 per barrel, down by $0.06 or 0.09%. This decline suggests a quiet start to the week as the market continues to evaluate conflicting factors such as global economic forecasts and geopolitical tensions.
Performance of Silver
Silver has seen a remarkable performance recently, rising 5.9% in August to reach its highest level since September 2011. This rally was driven primarily by a weaker U.S. dollar and increasing expectations of rate cuts, in addition to strong industrial demand, particularly from the green energy sector.
*At the start of Monday, September 1, 2025, silver saw a slight increase, reaching $39.84350 per ounce, a gain of $0.15200 or 0.38%. This rise comes amid growing demand for precious metals in a state of market uncertainty, with a daily trading range between $39.54750 and $39.85750.
Cryptocurrencies
The cryptocurrency market had a complex and volatile week. Bitcoin’s price dropped to around $108,392, a decline of 3.64% for the week, primarily due to profit-taking and some institutional caution. Despite the short-term drop, long-term expectations remain strong. The market is increasingly dominated by institutional interest, with Bitcoin ETFs holding 1.3 million BTC, and new executive orders may open up U.S. retirement accounts to cryptocurrencies. However, a large expiry of over $11 billion in Bitcoin options on August 30, 2025, added to the volatility. The market remains at a crucial turning point, with technical patterns indicating a potential bounce from the buyer’s zone between $108,000 and $113,000.
Preparing for a Change of Seasons
Historically, September and October have been the most challenging months for the stock market, often characterized by increased volatility and weaker returns. While this seasonal pattern can be concerning, it’s important to remember that these downturns are usually short-lived, with markets often rebounding strongly afterward.
This seasonal pause could be a valuable opportunity to re-evaluate investment portfolios. While continued exposure to large-cap stocks with strong AI connections is a good idea, investors can also consider adding new capital to sectors with the potential to catch up. This includes U.S. mid-cap companies and cyclical sectors such as financials and consumer discretionary. A well-diversified portfolio that can benefit from a broadening market will be in the best possible position for the coming seasons.
Trading Outlook for the Coming Week
Following the Labor Day holiday on Monday, the trading week from September 1st to 5th will be heavily influenced by a busy schedule of U.S. economic data and speeches from Federal Reserve officials. Key releases to watch include the PMIs for both Services and Manufacturing from the Institute for Supply Management (ISM), the ADP Employment Change, and initial jobless claims, all of which will provide a clearer picture of the economy’s momentum.
However, the week’s most significant event is the release of the U.S. jobs report on Friday. Investors will be closely watching nonfarm payroll figures, the unemployment rate, and average hourly earnings for clues about the health of the labor market. This report, along with comments from Fed chairs throughout the week, will be a crucial factor in shaping expectations for the central bank’s next monetary policy decision.
Latest Economic and Political News
The end of last week saw a flurry of economic and political news that impacted global markets:
Mixed Economic Data: Chinese data showed that the official manufacturing PMI rose slightly in August to 49.4, but it remained below market expectations. In contrast, the non-manufacturing PMI rose to match estimates at 50.3. In Japan, the Yen entered the North American session on a steady footing despite weak industrial output and retail sales data, while Tokyo consumer price inflation data matched expectations.
PCE Inflation and Fed Remarks: The Dow Jones Industrial Average fell on Friday after core Personal Consumption Expenditures (PCE) inflation data in the U.S. showed a rise to 2.9% year-over-year in July. Despite this, markets are still anticipating a September rate cut, especially after remarks from Mary Daly, President of the San Francisco Fed, who indicated that policymakers would be ready to cut rates soon and that inflation from tariffs would be temporary.
ECB Flexibility: Olli Rehn, a member of the ECB’s Governing Council, stated that the current inflation uncertainty requires “flexibility” in policymaking, suggesting the bank may choose to move slowly and cautiously.
Court Ruling Against Trump’s Tariffs: In a significant legal decision, a U.S. appeals court upheld a ruling that the sweeping tariffs imposed by U.S. President Donald Trump were largely illegal, which could have implications for U.S. trade policy.
The Japanese Yen: A Battle Between Expectations and Reality: The Japanese Yen remains in a critical position, with its exchange rate against the U.S. dollar (USD/JPY) hovering around 147. Although rising wages in Japan (up 3.0% in July) boost expectations that the Bank of Japan will raise interest rates, which could support the Yen, analysts are hesitant to confirm this. The Bank of Japan, which raised its interest rate to 0.5% in January 2025, still maintains a cautious policy due to global economic risks and inflation uncertainty. Moreover, the large yield differential between Japanese and U.S. bonds, which has been exacerbated by recent U.S. tariffs on Chinese goods, continues to weaken the Yen. Technical indicators, such as the “Bearish Flag” pattern, suggest the possibility of further Yen depreciation unless there is a surprise in inflation data or the next Bank of Japan decision.
Services PMI: The Services PMI plays a crucial role in assessing the health of the Japanese economy, as the services sector accounts for over 70% of GDP. The index fell in August to 52.7, with a decline in selling prices, which may reduce the Bank of Japan’s expectations for a fourth-quarter rate hike.
The Dollar vs. Yen Battle: The USD/JPY exchange rate is headed for further volatility as markets balance conflicting expectations. On one hand, the Yen is weakened by the significant interest rate differential between Japan and the U.S., where the dollar offers a much higher return. On the other hand, there are expectations that the Bank of Japan will raise rates again, especially if wage and household spending data show a strong and sustained improvement. This conflict puts the pair in a “tug-of-war,” with its final direction determined by the outcomes of U.S. jobs data and the statements of the two central bank officials.
