Stocks Rally After Powell Signals Possible September Rate Cuts
Market Recap for the Week of August 24, 2025
It was a solid week for most major stock indexes, with the bulk of the gains coming on Friday. These gains followed Federal Reserve Chair Jerome Powell’s speech at Jackson Hole—an annual event closely watched by market participants. In his remarks, Powell noted the weakening labor market and the risks it poses to the economy. He also highlighted that recent tariffs could put upward pressure on inflation. While this might result in only a short-lived, one-time increase, it could also lead to more persistent inflation, which would be problematic.
The bottom line: many market participants interpreted Powell’s comments as a signal that rate cuts are likely coming in September. Some of the most interest-rate-sensitive areas of the market rallied quickly after the speech. Small-cap stocks jumped about 3.8%, the two-year Treasury yield dropped by 9 basis points, and the dollar index fell by 90 basis points. All of these moves are consistent with expectations for lower interest rates. In other words, the market took the Jackson Hole speech as good news that rates may soon be heading down.
“Markets rallied after Powell’s Jackson Hole speech, interpreting his remarks as a signal that rate cuts may be coming in September.”
Chart of The Week
Our chart of the week, from JPMorgan’s Guide to the Markets, illustrates a simple but powerful point. It shows the historical real (inflation-adjusted) returns of small-cap stocks, large-cap stocks, corporate bonds, and cash—demonstrating the purchasing power one would have after investing $10,000 in each asset class. Unsurprisingly, both large- and small-cap stocks delivered significant gains over this long-term horizon.
Many investors today continue to hold cash, wary of a potential market downturn. While no one can predict with certainty whether a correction will occur in the next few years, history strongly suggests that cash is very likely to underperform stocks over the next 30 years.
The commentary in this blog is for informational purposes only and should not be taken as personalized investment advice
Source: Bloomberg, Bureau of Labor Statistics, Ibbotson, J.P. Morgan Asset Management.
Large cap stocks: IA SBBI Large Cap TR Index; Small cap stocks: IA SBBI Small Cap TR Index; Corporate bonds: Bloomberg Long U.S. Corporate Index; Cash: IA SBBIT T-bill Index. All returns are inflation-adjusted total returns, using annual average headline CPI inflation.
Guide to the Markets – U.S. Data are as of August 21, 2025.
