Last Week in Markets
As summer fades, investors step back into a market that hasn’t cooled off. August marked the fourth straight month of gains, powered by two forces: unrelenting AI enthusiasm and rising expectations of rate cuts ahead.
But history says autumn can be tougher. Seasonal patterns suggest volatility tends to creep in this time of year, testing conviction even when fundamentals remain supportive.
Adding to the week’s headlines was a clash over the Federal Reserve’s independence.
President Trump announced plans to fire Fed Governor Lisa Cook over alleged mortgage fraud. Cook has since filed suit to block the firing, while the Fed itself says it will comply with the courts. Investors are watching closely uncertainty around Fed leadership can translate into policy risks.
AI: The Spending Supercycle
Tech giants aren’t slowing down. Amazon, Google, Microsoft, and Meta have doubled annual infrastructure spending to nearly $600B over the past two years. Whether returns match the investment remains to be seen but right now, the market views not investing in AI as the greater risk. This narrative continues to underpin tech sector earnings.
Fed Policy & Market Rotation
While AI drives Big Tech, expectations of rate cuts are sparking life in small caps and cyclicals. U.S. small-cap stocks surged 7.5% in August, their best month of relative outperformance versus the S&P 500 in nine months. At Jackson Hole, Fed Chair Powell signaled concern for the labor market—an opening for easing. Bond markets now assign an 85% probability of a rate cut at the Sept. 17 meeting.
Investment Takeaway
The setup points to a potential broadening rally mid- and small-caps, value strategies, and cyclical names could gain traction as liquidity conditions ease.
But history reminds us: too much liquidity can breed bubbles, with echoes of 2000, 2007, and 2021. The Fed may eventually have to step back in, but not likely for another year or two.
This moment looks like a window to rebalance portfolios and position for rotation all while keeping an eye on how the Fed and the AI boom shape the next leg of this cycle.
Looking Ahead
As we move into September, markets continue to show resilience. The combination of AI-driven momentum, stronger corporate earnings, and growing expectations of central bank easing has kept equities on solid footing. Over a 12-month horizon, the setup looks constructive, with many sectors positioned to benefit from both technological tailwinds and looser financial conditions.
Still, it’s too early to declare smooth sailing. History reminds us that September and October are among the most volatile months for stocks, often marked by wider daily swings and softer performance. Investors should be prepared for bouts of turbulence even if the longer-term trend remains favorable.
The next key test comes on Friday with the monthly labor market report. July’s data raised concerns after showing only 73,000 jobs created, well below expectations, alongside sharp downward revisions for prior months April and May now stand at just 19,000 and 14,000 jobs, respectively. If August confirms this weakening trend, it could sharpen the Fed’s focus on easing, while also raising questions about the durability of consumer spending, which has been a pillar of the recovery.
In short, the broader trajectory for equities looks positive, but near-term catalysts especially labor market data could inject volatility. For investors, this period may be less about chasing returns and more about positioning carefully, managing risk, and staying nimble ahead of what could be a pivotal fall.
Earnings This Week:
A busy week of quarterly reports lies ahead, with several high-profile names set to release results. While the full calendar includes a wide range of companies across sectors, two standouts are worth highlighting: Salesforce and Broadcom.
Salesforce (CRM)
Salesforce represents the Dow Jones on this week’s earnings slate, with fiscal Q2 2026 results due after the close on Wednesday. Analysts expect earnings of $2.78 per share, an 8.6% year-over-year increase, on revenue of $10.1 billion, also up 8.6% YoY. The focus will be on enterprise spending trends, the pace of cloud adoption, and whether Salesforce can sustain growth while improving margins.
Broadcom (AVGO)
Broadcom steps into the spotlight after the close on Thursday with fiscal Q3 results. Analysts are looking for in-line to slightly better performance, underpinned by AI-driven demand, a recovery in core semiconductor markets, and continued integration of VMware. Given its central role in both AI infrastructure and enterprise software, Broadcom’s commentary on forward demand will be closely watched as a bellwether for the broader tech sector.
With both companies tied directly to themes of cloud computing and AI, their results may set the tone for investor sentiment heading into the back half of September. Strong numbers could reinforce the market’s recent optimism, while any hint of slowing momentum may stir up volatility in an already seasonally choppy stretch.
Top Upgrades/Downgrades from This Week & last week:
Wedbush Initiates Coverage On Serve Robotics with Outperform Rating, Announces Price Target of $15
Needham Reiterates Buy on NVIDIA, Maintains $200 Price Target
Morgan Stanley Initiates Coverage On Firefly Aerospace with Equal-Weight Rating, Announces Price Target of $52
Mizuho Maintains Outperform on Celsius Holdings, Raises Price Target to $90
Mizuho Maintains Outperform on Alibaba Gr Hldgs, Raises Price Target to $159
Morgan Stanley Maintains Underweight on Paramount Skydance, Lowers Price Target to $10
B of A Securities Maintains Buy on Lululemon Athletica, Lowers Price Target to $300
Cantor Fitzgerald Reiterates Overweight on UnitedHealth Group, Maintains $440 Price Target
Barclays Maintains Overweight on Ncino, Raises Price Target to $37
JP Morgan Maintains Overweight on Futu Holdings, Raises Price Target to $270
Stifel Maintains Hold on Lucid Group, Lowers Price Target to $2.1
