The first week of September 2025 proved to be a study in contrasts, with markets experiencing both significant volatility and record-setting performances. The week began with pronounced selling pressure as global bond yields climbed to multi-year highs, particularly impacting European markets where UK gilt yields reached levels not seen since 1998. Despite this initial turbulence, major US indices managed to recover, with the S&P 500 achieving new record highs by week's end as investors positioned for anticipated Federal Reserve rate cuts. The week's narrative was defined by three primary themes: persistent concerns over government debt sustainability, particularly in the UK; continued strength in artificial intelligence-related investments; and mounting expectations for monetary policy easing following disappointing employment data.
Market Indices: The S&P 500 demonstrated remarkable resilience throughout the week, overcoming early-week selling to close at a new record high of 6,526.94 on Friday. The benchmark index gained 0.7% for the week despite opening September with a 0.7% decline on Tuesday. The Nasdaq Composite outperformed with a 1.2% weekly gain, reaching 21,705.69, driven primarily by technology sector strength and positive developments in artificial intelligence. The Dow Jones Industrial Average experienced the most volatile session early in the week, falling 250 points on Tuesday as rising bond yields pressured traditional value stocks, but recovered to post a modest 0.2% weekly gain.
Sector Performance: Technology stocks led market gains, with the sector benefiting from several positive developments. Alphabet surged 7% following a favorable court ruling that allowed the company to retain its Chrome browser without facing forced divestiture. Apple climbed nearly 4% on reports of developing an AI-powered search tool called "World Knowledge Answers" that could rival ChatGPT and be integrated into a revamped Siri. Semiconductor stocks showed mixed performance, with Broadcom jumping 13% after reporting strong quarterly results and projecting $17.4 billion in Q4 revenue, a 24% increase year-over-year. Amazon gained 4% as traders increased bets on the company's AI prospects through its partnership with Anthropic, which secured $13 billion in funding.
US Dollar: The dollar experienced significant weakness early in the week, contributing to gold's rally, but found support later as safe-haven demand increased amid global market volatility. The dollar index traded near multi-month lows as rate cut expectations intensified.
EUR/USD: The euro crossed above $1.17 at the beginning of the week, showcasing a 2.4% gain for August and reflecting continued strength against the dollar. The pair ended the week near 1.1749, up 0.73% for the month.
GBP/USD: Sterling experienced its worst single-day decline since April, crashing 1.3% to $1.34 as UK bond yields surged dramatically. The pound faced intense selling pressure amid concerns about the UK government's fiscal position and debt sustainability.
Gold: The precious metal achieved multiple record highs during the week, reaching above $3,550 per ounce driven by expectations of Federal Reserve rate cuts, a weakening dollar, and persistent safe-haven demand. Gold gained approximately 6% over seven days, with the rally supported by continued central bank purchases and geopolitical uncertainties.
Oil: Crude prices showed modest gains amid various supply and demand factors, though the energy sector lagged in equity markets due to concerns about global economic growth.
Bitcoin: The leading cryptocurrency showed strength toward week's end, reaching more than week-long highs as rate cut expectations and dollar weakness provided tailwinds for digital assets.
US Employment Data: The week's most significant economic release was the August jobs report, which showed employers added only 22,000 jobs, well below the 75,000 expected and marking a sharp deceleration from previous months. The unemployment rate rose to 4.3% from 4.2% in July, while revisions to prior months were mixed, with June now showing a loss of 13,000 jobs. This marked the first monthly decline in employment since December 2020 and brought the three-month average job creation to just 29,000 per month.
Federal Reserve Policy: The weak employment data significantly increased expectations for a Federal Reserve rate cut at the September 17 meeting, with market pricing showing over 90% probability of a 25 basis point reduction. Fed Governor Christopher Waller explicitly supported rate cuts, stating he would back a quarter-point reduction and suggesting additional cuts over the next three to six months.
UK Fiscal Concerns: British government bond yields surged to multi-decade highs, with 30-year gilt yields reaching 5.697%, the highest since May 1998. The dramatic rise in borrowing costs reflected growing investor concern about the UK's fiscal position and debt sustainability under the Labour government.
European Monetary Policy: The European Central Bank and Bank of England are both expected to maintain their current monetary policies in their upcoming September meetings, with markets showing little expectation for immediate policy changes.
Technology Earnings: The technology sector delivered mixed results with several high-profile companies reporting. Broadcom stood out with impressive results, beating expectations with $1.69 earnings per share versus $1.66 expected, and revenue of $15.95 billion exceeding the $15.83 billion forecast. The company's AI semiconductor revenue surged 63% year-over-year to $5.2 billion.
AI Developments: Artificial intelligence remained a central theme, with Apple reportedly developing its own AI search tool to compete with ChatGPT and potentially partnering with Google for Gemini AI technology. Amazon's relationship with Anthropic continued to drive investor optimism, with analysts estimating the AI startup could contribute 100-400 basis points to AWS growth.
Earnings Disappointments: Salesforce provided a cautionary tale for investors, as despite beating Q2 estimates with $10.24 billion in revenue (versus $10.14 billion expected), the company's weak Q3 guidance disappointed markets. The cloud software provider's stock declined significantly as investors questioned the pace of AI adoption and revenue generation.
Looking ahead, several key factors will drive market direction in the coming weeks:
The week of September 1-5 highlighted the ongoing tension between technological optimism and macroeconomic concerns. While equity markets achieved new highs and gold reached record levels, underlying concerns about fiscal sustainability and employment growth suggest volatility may continue as markets navigate between policy accommodation expectations and fundamental economic challenges.