August 25, 2025 •Peter Klingelhofer
Key Events: Powell provides a path to lower rates
Fed Chair Jay Powell delivered a dovish message in Jackson Hole Friday in what many observers dubbed his 'last stand'.[1]
He acknowledged that “risks to inflation are tilted to the upside, and risks to employment to the downside”, but emphasized that “with policy in restrictive territory, …the shifting balance of risks may warrant adjusting our policy stance”.[2]
While tariff implementation could drive inflation higher, the impact is expected to be “relatively short-lived”.[3]Downside risks to employment appear to outweigh inflation concerns among Fed governors, increasing the likelihood of rate cuts resuming in September.
Market Review: Market rallies on rate cut expectations
After five days of declines, the US equity market surged to new highs on Friday. Small and mid-cap stocks led the charge, reinforcing the trend of broadening performance. International stocks also rose as the US dollar fell approximately 1% on Friday. Bonds were mixed even though US interest rates declined for the week.
Outlook: Easing monetary policy supports broadening
The US equity market showed healthy signs of broadening participation last week with small and mid-cap stocks outperforming large caps and value surpassing growth.
Concentration risk in the S&P 500 may be peaking. According to Bloomberg strategist Gillian Wolff, from the April 8 low to August 20, the market-cap-weighted S&P 500 outpaced the equal-weighted index by 6.6%.[4] High historical valuation spreads set the stage for reversal, and renewed rate cuts provide fundamental support for broader market gains. The prospect of converging earnings growth across sectors has strengthened. The chart below illustrates current estimates for S&P 500 earnings progression over the next 12-18 months.
As this dynamic unfolds, we would continue to advocate for broad diversification across asset classes, market caps and geographies to benefit from the normalization of exceptionalism.
Earnings growth prospects improving for the rest of the market[5]
OneAscent Navigator Outlook: August 2025
This material is intended to be educational in nature , and not as a recommendation of any particular strategy, approach, product or concept for any particular advisor or client. These materials are not intended as any form of substitute for individualized investment advice. The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own. Before participating in any investment program or making any investment, clients as well as all other readers are encouraged to consult with their own professional advisers, including investment advisers and tax advisors. OneAscent can assist in determining a suitable investment approach for a given individual, which may or may not closely resemble the strategies outlined herein.[6]
[1] Source: Barrons’ cover article dated August 18, 2025, mentioned ‘Powell’s Last Stand’.
[2] Source: Powell’s speech: “Labor Markets in Transition: Demographics, Productivity, and Macroeconomic Policy,” an economic symposium sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming, 8/22/2025.
[3] Source: Powell’s speech: “Labor Markets in Transition: Demographics, Productivity, and Macroeconomic Policy,” an economic symposium sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming, 8/22/2025.
[4] Source: Bloomberg Intelligence: “SPX’s Rare Rebound Edge Over SPW Echoes Tech-Bubble Pattern” by Gillian Wolff, 8/22/2025.
[5] Source: Bloomberg Intelligence: “Narrowing EPS Growth Gap Might Shine Light on Unloved Segments”, 8/21/2025.
[6] Market Returns reference the following indices: Large Cap – S&P 500, Mid Cap Growth – Russell Midcap growth, Mid Cap Value – Russell Midcap Value, Small Cap – Russell 2000, Developed – MSCI EAFE, Emerging – MSCI Emerging Markets, Aggregate – Bloomberg US Aggregate, High Yield – Bloomberg High Yield
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