• This past week, there were clear signals of a softening U.S. labor market. The August jobs reported indicated 22,000 jobs added last month, well below the expectations of 75,000. The unemployment rate also ticked higher from 4.2% to 4.3%. However, markets are now expecting the Federal Reserve to lower interest rates, perhaps two or three times this year. The rising expectation of Fed rate cuts has pushed Treasury bond yields lower, which is supportive of consumer and corporate borrowing over time. Stock markets were volatile to end the week but are still hovering near all-time highs. Overall, historically, if the Fed is lowering interest rates, and the economy is not headed toward an imminent recession, market outcomes are more favorable. While investors may experience bouts of market volatility as we navigate a softening labor-market backdrop, we believe the conditions remain in place for solid economic growth in the year ahead.
  
  
• Over the last week, investors digested several important data points on the U.S. labor market that pointed to a softer job market overall:
  
  1. Job openings are now less than total unemployed: For the first time since 2021, the total number of job openings fell below the number of those seeking jobs. In fact, job openings overall fell to the lowest level since 2020, implying that employers are pulling back on hiring, in part by removing existing job postings.
  

  

  2. Private payrolls were weaker than expected: The ADP private payrolls report for August last week also came in below expectations. Total job gains were 54,000, below forecasts of 68,000, and well below last month's 106,000. The report did show gains in the leisure and hospitality and construction sectors, although hiring across other areas was weaker.
  
  3. The U.S. nonfarm jobs report was weaker than expected: Finally, perhaps the most anticipated labor-market report of the week was the U.S. nonfarm-jobs report, which also came in below forecasts. Total jobs added were 22,000, below expectations of 75,000 new jobs and also below last month's 79,000 job gains. The unemployment rate ticked higher to 4.3%, now at the highs for the year. And notably, while the July figures were revised higher to 79,000, the June figures were revised lower to a loss of 13,000 jobs, the first negative month since 2020.
  
  

  

  Overall, while there appeared to be pockets of bright spots, the trend in the labor data pointed to a softer U.S. jobs market.
  
  There is also a notable shift lower in labor supply and demand dynamics over the past year1. Labor supply has likely been impacted by immigration reform and broader demographic trends, while labor demand has been softer, in our view, given the economic uncertainty, particularly around trade and tariffs. With a slowing labor supply, this implies fewer jobs may be needed to keep the unemployment rate steady.
  
  Nonetheless, we think the more immediate takeaway is that hiring has been softening across many sectors of the economy recently1, which also implies that the Federal Reserve may be more inclined to step in and provide monetary support for the economy (see next section). If the Fed does lower interest rates in the months ahead, this likely means lower borrowing costs for both consumers and corporations, which can spark better economic activity in the years ahead.
  
  
• Given the weakening labor-market data, we would expect the Fed to step in and provide monetary-policy support. Keep in mind that Fed Chair Jerome Powell noted just last month at the Jackson Hole symposium that a shift in monetary policy may be warranted, especially as the labor market has the potential to more quickly deteriorate. Last week's data appears to confirm that we may be seeing some start to a softening in the U.S. jobs market.
  
  A key question now for investors, in our view, is not only will the Fed cut rates, but by how much and how often. After last Friday's jobs report, markets are now expecting 100% probability of a Fed rate cut in September, according to CME FedWatch. In fact, markets now see about a12% chance that the Fed will cut rates by an outsized 0.5% rather than the more traditional 0.25% rate cut. Overall, markets are now forecasting six total rate cuts by the Fed, bringing the fed funds rate to around 3.0% in 2026, according to the CME data.
  
  

  

  In our view, the Fed is likely to cut rates one or two times this year, and one or two times next year, bringing the fed funds rate to around 3.5%. This would likely provide monetary-policy support for the economy and bring the fed funds rate closer to neutral from its current restrictive policy. Historically, when the Federal Reserve is cutting rates, and the economy is not in an imminent recession – which we think is the case today – stock markets welcome this backdrop.
  
  In addition to the move in Fed rate-cut probabilities, there were also outsized moves in the bond market as a result of last week's jobs data. The 2-year Treasury yield, which is more tied to the path of the Fed over the next two years, moved to the lowest level of the year to under 3.5%1. And the 10-year yield, which tends to reflect growth and inflation trends and includes some risk premium for rising debt levels, also moved lower to under 4.1%. Of note was that the yield curve, or the difference between the 10-year yield and the 2-year yield, has steepened. This can be a positive for lenders like large banks who borrow short-term and lend long-term, as it increases their margins and profitability on these products.
  
  

  

• The Federal Reserve has two mandates – maximum employment and stable prices. The second mandate of inflation will come to the forefront once again next week. Investors will get both consumer price index (CPI) and producer price index (PPI) inflation figures for the month of August on Wednesday and Thursday next week, the last reading ahead of the September 17 FOMC meeting.
  
  The expectation is that headline CPI inflation will tick higher to 2.9% annually, up from 2.7% last month, although core CPI, excluding food and energy, will remain steady at 3.1%1. PPI inflation is forecast to tick lower from 3.7% to 3.5%, while core PPI is expected to fall from 3.3% to 3.2%1. Both sets of inflation metrics remain above the Fed's 2% target, and the higher PPI inflation implies that companies are still facing pricing pressures from their wholesalers, likely driven in part by higher tariff rates.
  
  Nonetheless, we think there are a couple of mitigating factors to the inflation rates that continue to remain above target and are in some cases creeping higher. First, as the Fed has indicated, tariff-induced inflation on goods may continue to show up in the months ahead, but we would also expect inflation rates to stabilize and move lower after the one-time step-ups in prices are realized. And second, while goods inflation makes up about 33% of the inflation basket, services inflation makes up about 66%. If services inflation, which include shelter and rent pricing, start to soften, especially as the labor market softens, we could still see overall inflation rates remain steady or even move lower.
  
  

  

• Overall, after a nice rally in the stock market, with the S&P 500 up over 25% since the April lows, markets now face a few walls of worry. The labor market is showing signs of softening, inflation remains above 2.0%, and investors are entering the seasonally more volatile months of September and October.
  
  However, in our view, if markets do experience volatility or pullbacks in the weeks ahead, which is not uncommon after periods of strong performance, we can use these as opportunities to position ahead of a potentially stronger year-end and 2026.
  
  We believe there are more tangible catalysts on the horizon that could support better performance in the year ahead. First, the Fed is likely to cut rates and bring them more toward a neutral level, likely around 3.5%. This is supportive of lower borrowing costs and could spark a recovery in areas like the housing market. Second, the U.S. tax bill that was passed does provide some fiscal stimulus measures and appears to be especially supportive of corporations and small businesses that enact R&D and capital-expenditure spending. This could also incentivize more corporate spending in the year ahead. And finally, more clarity around tariff and trade policy will likely allow corporations to resume their spending and potentially hiring plans as well.
  
  In this backdrop, we would continue to look for opportunities to rebalance portfolios and add quality investments at favorable prices. We continue to favor U.S. large-cap stocks, which can offer exposure to mega-cap technology and AI sectors. We also recommend U.S. mid-cap stocks, which may benefit as the Fed cuts interest rates and market leadership potentially broadens. Finally, from a sector perspective, we favor sectors across growth and value, including consumer discretionary, financials, and health care, all of which may benefit from stronger growth rates in 2026. Remember, as we head into the final months of the year, your financial advisor is a great resource to help assess whether your investments are well-diversified and on-track to meet your personal financial goals.
  
  
• Final Words: Market indicates neutral. Buy Gold and Silver (GLD & SLV ETF's).
  
  

  

  Below is last week sector performance report.
  
  Weekly Sector Performance for Sept 2-5, 2025:
  
  $XLE Energy: -2.83%, RSI: 49.50
  $XLK Technology: -1.38%, RSI: 51.89
  $XLC Communication: 2.76%, RSI: 73.86
  $XLY Consumer Discretionary: 0.41%, RSI: 64.39
  $XLP Consumer Staples: 0.76%, RSI: 45.92
  $XLF Financial: -1.45%, RSI: 50.55
  $XLV Health Care: 1.08%, RSI: 59.58
  $XLI Industrials: -1.62%, RSI: 48.65
  $XLB Materials: -0.21%, RSI: 58.26
  $XLRE Real Estate: 0.24%, RSI: 54.90
  $XLU Utilities: -1.37%, RSI: 38.45
  

  

If you are looking for investment opportunities, you can take a look at our Hidden Gems section, and if you want to see our past performance, visit our Past Performance section. If you are looking for safe and low cost Exchange Traded funds(ETFs), check out our ETF recommendations.

Currrent Shiller PE (see below) is showing overbought conditions as index is far above mean/media and our AryaFin engine is indicating caution. Have a good weekend.