U.S. and Canadian Markets
Renewed enthusiasm for AI pushed stocks higher in August as investors looked past mixed economic signals.
The Standard & Poor’s 500 Index advanced 2.62 percent, while the Nasdaq Composite rose 3.93 percent. The Dow Jones Industrial Average lagged, adding 1.34 percent. The S&P/TSX rose 2.96 percent.1,2
“If you're a leader, people's lives should be better because of the influence you've had along the way.” - Tony Dungy, who won a Super Bowl as both a player and a head coach.
Strong Start
Stock prices opened the month higher thanks to diplomatic efforts in the Middle East. Big Tech helped pace the rally, further boosted by strong Q2 corporate reports. Investors seemed to believe that a soft job market update could influence the Fed’s outlook for short-term rates.3,4,5
Mid-Month Malaise
Markets then traded in a sleepy summer trading range for the next several weeks as investors' attention shifted between economic reports and activity in the bond market.6,7
AI-Led Rally
Over the last full week of the month, the three major averages looked past a slightly warmer-than-expected inflation report and focused on upbeat AI-related Q2 corporate reports, which rekindled positive market sentiment. Semiconductor stocks and adjacent names in the AI trade led the rebound, driving broader gains for the Nasdaq and S&P 500.8,9
U.S. Sectors
Seven of the 11 S&P 500 Index sectors advanced in August.10
Energy (+7.4 percent) led the pack for the second month in a row, along with Information Technology (+6.4 percent). Consumer Discretionary (+0.4 percent), Communication Services (+3.0 percent), Health Care (+4.9 percent), Materials (+4.5 percent), and Financials (+1.4 percent) finished the month higher.10
Consumer Staples (-0.1 percent), Industrials (-2.6 percent), Real Estate (-2.1 percent), and Utilities (-4.8 percent) were under pressure.10
Canada Recap
The S&P/TSX Composite Index notched a solid gain in August, powered by stronger bank earnings and better-than-expected gross domestic product (GDP) data.11
Mining stocks set the pace, setting off a string of record closes for the TSX during the month. Energy stocks rallied as investors focused on higher oil prices amid Strait of Hormuz-related supply concerns.12,13
A stronger-than-expected Q2 GDP report added to the rally, though the index gave back some ground late in the month as energy and technology stocks came under pressure.14,15,16
What Investors May Be Talking About in September
Investors will be keeping close tabs on consumer trends in September.
Retail sales have generally declined over the past six months, putting greater focus on the consumer spending engine that generates two-thirds of U.S. economic growth.17
Any update on the consumer that exceeds or misses a forecast can generate a reaction from Wall Street. Retail reports tend to provide insights into how consumers are navigating the economic crosscurrents of inflation, the job market, and an uncertain rate outlook.
World Markets
The MSCI EAFE Index rose 1.80 percent in August, thanks to pockets of strength throughout the world.18,19
Europe was mixed, with Germany (+2.45 percent) leading, with Spain (+0.97 percent) and Italy (+0.84 percent) not far behind. France (-2.06 percent) and the United Kingdom (-0.40 percent) were under pressure.19
Markets outside of Europe were more mixed, too. India fell 1.46 percent while Egypt added 2.66 percent.19
It was the same “mixed market” story in the Pacific Rim. Japan (+3.03 percent) and Australia (+1.11 percent) were among the best performers, while Hong Kong (-1.23 percent) was under steady pressure. Korea picked up 3.40 percent, bringing its year-to-date gain to 61.84 percent.19
Indicators
Gross Domestic Product (GDP)
The economy grew 1.5 percent in Q2, unchanged from the Commerce Department’s initial estimate. Solid consumer spending and AI infrastructure investment remained primary drivers of Q2 growth.20
Employment
Employers shed 23,000 jobs in July, missing expectations for an 83,000-job gain. July’s decline was the first monthly contraction in the labor market since February. The unemployment rate in July edged down to 4.1 percent from 4.2 percent in June. Year-over-year wage growth rose 3.2 percent, just short of the 3.4 percent expected.21,22
Retail Sales
Retail sales fell 0.6 percent in July over the prior month. Economists were expecting a 0.1 percent increase. Year-over-year retail sales increased 5.0 percent in July, easing from June’s upwardly revised 6.8 percent rise.23,24
Industrial Production
Industrial output advanced a modest 0.2 percent in July over the prior month, slightly lagging market expectations for a 0.3 percent increase and just behind June’s upwardly revised 0.3 percent gain. Year over year, industrial production rose 1.1 percent, slowing from June’s upwardly revised 1.3 percent gain.25
Housing
Housing starts unexpectedly dropped 12.4 percent in July over the prior month, reflecting weak homebuilder sentiment as rising construction costs, still-elevated mortgage rates, and economic uncertainty took a toll. The drop follows June’s 19 percent jump.26,27
Sales of existing homes fell 1.7 percent in July over the prior month to 4.06 million units, down from June’s 1.4 percent drop. The median existing home sales price rose 2 percent to $434,100 from a year earlier, the second-highest median price on record after June’s $442,800 median price. The inventory of unsold homes fell 1.9 percent in July over the prior month to 1.54 million units, equal to 4.6 months of supply at the current sales rate.28,29
Sales of newly constructed, single-family homes unexpectedly dropped 10.5 percent in July from the prior month to 607,000 homes. Regionally, month-over-month sales rose 30.3 percent in the Northeast and 6.2 percent in the West but declined 13 percent in the South and 42.7 percent in the Midwest.30
Consumer Price Index (CPI)
Inflation rose 0.1 percent in July over the prior month, as expected, after June’s 0.4 percent decline. Core CPI, which excludes energy and food, rose 0.2 percent in July over the prior month as expected, up from June, when month-over-month core prices remained unchanged. Year-over-year CPI rose 3.4 percent as expected, cooling slightly from June’s 3.5 percent annualized rise. Core CPI increased 2.5 percent in July over the prior 12 months, down slightly from 2.6 percent in June.31,32
Durable Goods Orders
Orders of manufactured goods designed to last three years or longer increased 1.1 percent in July, more than doubling market expectations.33
The Federal Reserve
While there was no official Federal Open Market Committee (FOMC) meeting in August, some would argue that one of the most important Fed meetings of the year took place in Jackson Hole, Wyoming.
It’s the Fed’s annual Economic Policy Symposium, which took place August 27-29. Each year, investors look for clues about where the Fed thinks the economy is headed over the long term. It was at Jackson Hole that then-Fed Chair Jerome Powell surprised investors in 2023 with his “higher for longer” interest rate message.34,35
Fed Chair Kevin Warsh, who believes less is more when it comes to the Fed communicating about future policy moves, made it clear to attendees that inflation remains his primary focus. "We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do. That's our job . . . our mandate . . . and our charge to keep," said Warsh.34
The next official FOMC meeting is September 15-16.34
By the Numbers: Back-to-School
Total combined U.S. back-to-school and college spending expected in 2026, a record high: 146.8 Billion36
Expected U.S. back-to-college spending in 2026 to cross the $100 billion mark for the first time: $103.5 Billion37
Expected U.S. back-to-school spending on K-12 students in 2026, up from $39.4 billion the year before: $43.3 Billion38
The average amount U.S. K-12 households expect to spend on the 2026 school year: $863.8639
Share of U.S. shoppers who had started their back-to-school shopping by early July: 62%40
Share of U.S. back-to-school shoppers who planned to purchase items online, down from 55% the year before: 50%42
Share of U.S. shoppers who intend to buy only what is essential to start the school year: 47%41
Canada's total back-to-school market in 2026: $4.5 Billion43
The approximate number of K-12 students in Canada: 6 Million44
Share of Canadians who will shop for school items in person: 99%45
