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Will top Fed officials reinforce market confidence that rate cuts are on the way?

The S&P 500 struck fresh record highs last week, taking its gains for 2025 close to 10%, helped by market expectations that the Federal Reserve will resume easing at its next meeting in September. This was despite mixed signals from US data on whether higher tariffs are rekindling inflation. The consumer price index for July, while confirming that levies have been pushing up prices, suggested a muted effect. Data later in the week showing the largest monthly gain in producer prices in three years was less encouraging.

But even after this ambiguous picture, markets are still pricing a roughly 90% chance that the Fed will cut at its upcoming meeting in September. That leaves some scope for disappointment this week when top central bank officials meet for the Fed’s annual symposium in Jackson Hole. Any pushback from Chair Jerome Powell on the outlook for rate cuts—or from any of the other 11 voting rate-setters—could undermine market optimism. In recent statements, Powell has made the case that there is still a risk that the rise in US tariffs could lead to a sustained acceleration of inflation. At the Fed’s meeting last month, this was also the view of the majority of top officials—though two members of the committee dissented in favor of an immediate cut, citing threats to the labor market. Investors will be seeking confirmation that the recent inflation and jobs data is tilting the balance toward easing.

Our view, is that recent data, especially the weaker July jobs report, has strengthened the case for imminent easing from the Fed. We expect a 25- basis-point cut next month, followed by a further 75 basis points of easing up to June 2026. Lower policy rates are likely to push Treasury yields down. Accordingly, we expect government and investment grade bonds to deliver mid-single-digit returns over the next 12 months. Quality bonds also look appealing if US economic growth disappoints and data weakens more than expected, as yields would likely fall quickly, delivering significant capital gains. (For more, see the House View Daily: Positioning portfolios as Fed rate-cuts approach and Put excess cash to work amid higher inflation.)

What comes next after talks between Trump and Putin?

The summit in Alaska between US President Trump and Russian President Putin ended without a breakthrough on a Ukraine ceasefire, though both leaders described talks as constructive and productive. Follow-up meetings —including a White House session with Ukraine’s President Zelenskyy and European leaders—are planned. European officials reiterated support for “ironclad security guarantees” for Ukraine, while US and Russian nvoys hinted at possible NATO-style arrangements outside formal NATO structures. Russia indicated it could accept such guarantees for Ukraine if reciprocal security commitments were made to Moscow.

Despite the diplomatic engagement, Russia and Ukraine bargaining positions remain far apart: Ukraine refuses to cede territory, and demands an unconditional ceasefire and robust security guarantees, while Russia appears to retain its maximalist demands, including territorial concessions and demilitarization. Some progress was made on the concept of security arrangements, with Zelenskyy noting a “common view” is emerging on peace agreement fundamentals. Still, the lack of trust and divergent goals mean any negotiation process will be slow and agreements treated with caution.

We expect the war to continue into next year, with ongoing diplomatic efforts and possible attempts to reduce hostilities, such as aerial truces. Secondary US tariffs on buyers of Russian energy, including a threatened 25% tariff on India, could disrupt global oil markets, but immediate sanctions seem less likely given the summit’s constructive tone. US-India trade tensions persist, with negotiations postponed and tariffs used as leverage, though permanent escalation appears unlikely if India offers concessions.

With geopolitical risks likely to remain elevated, we believe gold remains an effective hedge and diversifier within portfolios. The precious metal continues to be supported by investment demand and buying from global central banks, many of which are eager to diversify away from US dollars.

That said, we see various ways to position for progress toward a ceasefire. According to a World Bank assessment released in February this year, the total cost of Ukraine's reconstruction could reach USD 524bn—or 2.8 times Ukraine’s nominal GDP in 2024—over the next 10 years. In our view, reconstruction in Ukraine is likely to create substantial demand across industries, benefiting companies with local and European production facilities. Against this backdrop, we see select opportunities in both the bond and equity markets. For more details, see the Global Risk Radar, and our bond and equity reports: “How to position for Ukraine’s reconstruction with bonds – an update” (published on 12 August), and “How a Ukraine- Russia ceasefire could affect European equities: What if?” (published on 14 August).

Will the rotation toward more defensive parts of the tech sector continue?

While the tech-heavy Nasdaq 100 has also been climbing further into uncharted territory, some of the largest tech firms fell amid a broad rotation into the sector’s growth laggards and value stocks. Weaker-than-expected guidance from companies in the artificial intelligence (AI) supply chain, talk of a potential delay in NVIDIA’s next-generation chips, and CoreWeave’s bigger-than-expected second-quarter loss all contributed to the rotation.

The next major news event from the tech sector comes only on 27 August, when AI chipmaker NVIDIA releases its quarterly results. However, in the meantime investors will be watching to see if the rotation into more defensive areas of the industry continues, and whether we get any further guidance from global industry leaders.

We remain confident in the long-term outlook for AI. That said, the latest rotation has reinforced our view that investors should seek a more balanced positioning in the near term across the AI value chain, including exposure to AI laggards such as internet and software companies, and China’s tech sector. (For more, see the House View Daily: Tech rotation supports balanced AI positioning.)

With new developments continuing to emerge on the geopolitical front, we emphasize the importance of positioning portfolios to navigate political risks. We maintain our view on gold as an effective hedge against such risks and expect gold prices to continue to be supported by factors including demand from central banks globally.

Gold demand from central banks remains strong

Annual central bank net gold purchases and CIO forecast for 2H25