Headwinds Ease, Markets Rise
Strong corporate earnings and declining odds of a Fed rate hike in September helped equity markets move higher last week. With hopes of a ceasefire in the works, oil
decreased more than 8% last week.1 The Jobs Report indicated that the labor market is still in a "low hire, low fire" environment. Last week's report showed that the labor market lost 23,000 jobs versus the expectation of +85,000.2 While the private sector did show 30,000 hew hires, more than 53,000 in government job losses sealed the poor report. In addition, the prior month's job gains of 57,000 were revised lower to 20,000.2 However, the Challenger Job Cuts measure showed a month-over-month decline of 46% and have been in a declining trend since peaking in April of 2025.3
The Fed holding rates steady in July and the recent Jobs Report has caused expectations for September's rate decision to drop. Just one week ago, the expectation of a
rate hike were at least 67%.4 That rate hike probability has declined to about 33%, while the odds of no rate hike have risen from 44% to at least 56%.4 This could open the door for equities to move higher heading into the historically volatile political season that is Mid-term elections. With the decline in gas prices, an expected flat inflation figure this week with the CPI release and another favorable measure for August could lead to the potential for rates to remain stable for the remainder of 2026.
While the headwinds of the Fed and higher inflation seem to have eased, at least for now, another headwind has emerged and that is investor behavior. The amount of
margin debt (amount of money that investors have borrowed to purchase securities) as a percentage of current market capitalization is close to reaching the levels seen during the Dot.com peak.5 In addition, the use of leveraged ETFs (exchange-traded funds that employ leverage or risk to deliver a multiple - 2x or 3x - the daily performance of an underlying index, sector, or asset) has exploded in 2026. The use of margin and leverage suggests "crowded trading" and is building in the financial system, which could lead to a potential bubble formation in equities. Investors would be wise to manage their risk tolerance and keep long-term investment plans consistent by investing their assets with stated goals in mind instead of attempting to chase the return of an index or particular asset.
Disclosures
The information contained herein is for informational purposes only and is developed from sources believed to be providing accurate information. The opinions expressed are those of the author, are for general information, and should not be considered a solicitation for the purchase or sale of any security. The decision to review or consider the purchase or sell of any security should not be undertaken without consideration of your personal financial information, investment objectives and risk tolerance with your financial professional.
Forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.
Any market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general.
Past Performance does not guarantee future results.
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