The equity market finished the week with a modest risk-on tone, supported by small- and mid-cap strength and optimism across select cyclical sectors.
T he Russell 2000 surged 3.3% week-to-date and the S&P Mid Cap 400 climbed 2.6%, signaling broad support for domestically oriented stocks, while the DJIA rose 1.5%, finishing the week with fresh record highs, and the S&P 500 added 0.3%. The Nasdaq Composite lagged slightly, retreating 0.6% week-to-date, reflecting ongoing headwinds for mega-cap technology.
Investor attention remained on Fed policy, with markets digesting a mix of dovish and hawkish signals. Markets surged on Friday after Fed Chair Powell’s Jackson Hole remarks hinted at a willingness to adjust policy if conditions warrant, while Cleveland Fed President Beth Hammack (non-voting FOMC member) emphasized that inflation remains elevated. The probability of a 25-basis point rate cut at the September FOMC meeting fluctuated during the week but finished elevated, providing a cautiously supportive backdrop for equities.
Week Ending 08/22/2025 Small-cap and cyclical sectors led the advance. Consumer discretionary rose 1.3%, underscoring interest in sectors positioned to benefit from a potentially more accommodative policy stance. The financials (+2.1%), industrials (+1.8%), materials (+2.1%), and energy (+2.8%) sectors also contributed meaningfully to the week’s gains. Conversely, defensive and large-cap technology names lagged.
The information technology sector fell 1.6% and the communication services sector retreated 0.9%, reflecting continued rotation away from mega-cap and tech-heavy indices toward smaller and more cyclical stocks. Treasuries moved with the Fed-driven sentiment, as the 2-year note yield fell to 3.69% and the 10-year note settled to 4.26% by Friday, balancing elevated rate cut expectations against ongoing inflation concerns.
Overall, the week underscored a market navigating between optimism for potential Fed easing and caution over inflationary pressures. Mid and small-cap stocks, along with homebuilders and cyclical sectors, drove the gains, while mega-cap technology and defensive names underperformed. With month-end approaching, focus will likely shift to upcoming earnings, economic data, and any further Fed signals as traders position for the final stretch of August.
• Russell 2000 + 3.3% for the week/ +5.9% YTD
• S&P Mid Cap 400 + 2.6% for the week/ + 4.3% YTD
• DJIA +1.5% for the week/ +7.3% YTD • S&P 500 + 0.3% for the week/ +10.0% YTD
• Nasdaq Composite -0.6 for the week/ +13.3% YT