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Financial Markets Weekly Review: August 18-22, 2025

Financial Markets Weekly Review: August 18-22, 2025

Key Points

  • Jackson Hole Speech: Fed Chair Jerome Powell delivered his eighth and final Jackson Hole address, with markets pricing in a 75% probability of a September rate cut amid divided Fed sentiment on inflation versus labor market concerns.
  • Tech Sector Selloff: The Nasdaq Composite (QQQ) plunged 1.5% in its worst single-day drop in three weeks, with Nvidia (NVDA) shedding 3.5% and losing approximately $160 billion in market cap.
  • Cryptocurrency Correction: Bitcoin stabilized near $113,000 after a sharp correction wiped nearly $400 billion from the total crypto market valuation, falling from an all-time high of $4.2 trillion to around $3.8 trillion.
  • Corporate Earnings: Target (TGT) stock plummeted 7% on declining sales and leadership changes, while Walmart (WMT) dipped 3% despite beating earnings amid profit margin pressures from rising costs.
  • AI Bubble Concerns: OpenAI CEO Sam Altman publicly acknowledged the AI sector is in a bubble, comparing current market conditions to the dot-com era while warning some investors will get "very burnt".

Overview

The week of August 18-22, 2025, was defined by anticipation and volatility as markets navigated a confluence of monetary policy uncertainty, technology sector rotation, and mounting concerns over artificial intelligence valuations. The S&P 500 (SPY) logged its fifth consecutive losing day by Thursday, marking the index's longest losing streak of 2025, as investors positioned ahead of Fed Chair Powell's pivotal Jackson Hole address. The week highlighted the market's increasing sensitivity to central bank communications while exposing fragility in the heavily concentrated technology and AI trades that have dominated 2025 performance.

Financial Markets Weekly Recap

Equities

Market Indices: The S&P 500 (SPY) recorded its worst streak since early January, closing Thursday with a 0.4% loss for its fifth straight red session ahead of Powell's speech. The Nasdaq Composite (QQQ) fell 0.3% on Thursday, extending its slide to three consecutive sessions as AI and semiconductor stocks faced continued pressure. The Dow Jones Industrial Average (DIA) slipped 153 points, ending its five-day streak of minimal moves as the tech selloff broadened into industrials and consumer names.

Sector Performance: Technology stocks bore the brunt of selling pressure, with the AI-heavy trade experiencing its most significant correction in weeks. The semiconductor sector led declines with Nvidia (NVDA) falling 3.5% on Tuesday alone, while AMD dropped 5.4% and Broadcom (AVGO) declined 3.6%. The Magnificent Seven collectively lost over $300 billion in market capitalization during Tuesday's session, highlighting the concentration risk in current market leadership. Energy and defense stocks showed relative strength as geopolitical tensions surrounding Trump-Putin-Zelensky meetings provided safe-haven flows.

Corporate Highlights:

  • Intel (INTC): Shares surged 5% in premarket trading after SoftBank agreed to invest $2 billion at $23 per share, giving the Japanese conglomerate approximately a 2% stake. Reports also surfaced that the Trump administration is considering taking a government stake of up to 10% in Intel through converting Chips Act subsidies into equity.
  • Target (TGT): Stock tumbled 7% in premarket trading following mixed quarterly results and a leadership transition. Despite beating earnings estimates with $2.05 EPS versus $2.03 expected, comparable sales fell 1.9% year-over-year, and the company announced COO Michael Fiddelke would replace CEO Brian Cornell on February 1st.
  • Tesla (TSLA): Shares continued their decline, dropping 1.6% Wednesday and 1.8% Tuesday, as reports emerged that CEO Elon Musk abandoned his "America Party" political project to refocus on his companies. The stock remains down 15% year-to-date, making it one of the few Magnificent Seven laggards.
  • Nvidia (NVDA): The chip giant faced continued pressure ahead of its August 27 earnings, with analysts expecting $1.00 EPS on $45.9 billion revenue. Despite the volatility, Wall Street projects 47% earnings growth and 53% revenue growth year-over-year.

Currencies

US Dollar: The dollar index remained near 98.00 as forex traders braced for Powell's Jackson Hole speech, with the Fed's policy direction creating uncertainty about the greenback's trajectory. Treasury yields remained relatively stable ahead of the key address, with the 10-year yield climbing less than one basis point to 4.337%.

EUR/USD: The euro encountered resistance at $1.17 as the pair hit a sellwall at what analysts described as the "third inflection point," with geopolitical developments and monetary policy divergence creating headwinds for further euro strength.

GBP/USD: Sterling snapped back above $1.35 following hotter-than-expected UK inflation data, with July CPI rising to 3.8% versus expectations of 3.7%. The surprise increase led traders to pare bets on Bank of England rate cuts.

USD/JPY: The dollar surged toward 149 against the yen as Japan's inflation remained sticky at 3.1% in July, down from 3.3% in June but still well above the Bank of Japan's target, raising expectations for potential rate hikes.

Commodities

Gold (GLD): Gold prices jumped to $3,360 per ounce as traders shifted focus to geopolitical developments, particularly the upcoming Trump-Zelensky meeting and ongoing tensions with Russia. The precious metal benefited from safe-haven flows amid market uncertainty.

Oil: Energy markets remained volatile as geopolitical tensions provided underlying support, though specific pricing data was limited during the review period.

Cryptocurrencies

Bitcoin (BTC.X): Bitcoin stabilized near $113,000 after declining 10% from its record $124,500 peak earlier in the month. The correction was attributed to profit-taking and uncertainty ahead of Powell's Jackson Hole speech.

Ethereum (ETH.X): The second-largest cryptocurrency showed relative weakness, sliding 12% from its recent $4,800 peak to approximately $4,200 as enthusiasm cooled across decentralized finance applications.

Economic Indicators and Policy Developments

UK Inflation Data

The UK's Consumer Price Index rose to 3.8% in July, exceeding expectations of 3.7% and marking the highest level since January 2024. The acceleration was driven primarily by transport costs, which climbed 3.2% year-over-year, up from 1.7% in June. Airfare prices surged 30.2%, likely reflecting seasonal factors related to school summer holidays. The surprise increase prompted traders to reduce bets on Bank of England rate cuts, with markets now not fully pricing in another quarter-point reduction until March 2026.

Japan Economic Indicators

Japan's inflation rate eased to 3.1% in July from 3.3% in the previous month, marking the lowest reading since November 2024. However, core inflation remained elevated at 3.1%, matching the headline rate and suggesting persistent underlying price pressures. Food prices jumped 7.6%, driven by rice costs that soared 90.7% year-over-year despite government efforts to curb staple food costs. The sticky inflation reading supported expectations that the Bank of Japan may continue its gradual policy normalization.

Federal Reserve Policy Outlook

Markets entered the week pricing an approximately 95% probability of a September rate cut, but confidence waned to around 75% by Friday as Fed officials expressed mixed signals. Minutes from the July Fed meeting revealed that two policymakers had pushed for an immediate rate cut, but the majority preferred caution citing persistent inflation pressures. Powell's Jackson Hole speech was widely anticipated to provide clarity on the central bank's September decision.

Geopolitical Developments

Trump-Putin-Zelensky Diplomatic Activity

The week was marked by significant diplomatic developments following President Trump's three-hour meeting with Russian President Vladimir Putin in Alaska on August 15. Trump subsequently met with Ukrainian President Volodymyr Zelensky and European leaders in Washington on August 18, though the meetings yielded limited concrete progress toward ending the Ukraine conflict. Trump publicly stated that Zelensky could "end the war with Russia almost immediately, if he wants to, or he can continue to fight," placing the onus on Ukraine to make territorial concessions.

Market Impact of Geopolitical Tensions

The diplomatic activity contributed to safe-haven demand for gold and created volatility in currency markets. The uncertainty around potential peace negotiations and their implications for global trade and energy supplies added another layer of complexity for investors already grappling with monetary policy uncertainty.

Sector-Specific Developments

Artificial Intelligence and Technology

The AI sector faced unprecedented scrutiny following OpenAI CEO Sam Altman's candid admission that the industry is experiencing a bubble. Altman compared current conditions to the dot-com era, stating: "Are we in a phase where investors as a whole are overexcited about AI? My opinion is yes. Is AI the most important thing to happen in a very long time? My opinion is also yes". He criticized "insane" valuations for startups with "three people and an idea" securing hundreds of millions in funding.

Despite bubble concerns, major technology companies continued aggressive AI investments. Alphabet (GOOGL) stock ticked up 1.2% Friday after reports that Meta (META) agreed to spend over $10 billion on Google Cloud services in a six-year deal aimed at supercharging AI infrastructure. The contract strengthens Google's position against rivals Amazon (AMZN) and Microsoft (MSFT) in the enterprise AI race.

Retail Sector Challenges

The retail sector delivered mixed results that highlighted ongoing consumer spending pressures. Target (TGT) reported a 1.9% decline in comparable sales despite beating earnings estimates, with management citing persistent inflation pressures and tighter consumer budgets. The company's leadership transition, with COO Michael Fiddelke replacing longtime CEO Brian Cornell, was viewed skeptically by investors who had hoped for an external candidate.

Walmart (WMT) provided a more nuanced picture, topping sales expectations but warning that rising import costs and tariffs were pressuring profit margins. The retail giant raised its full-year outlook while acknowledging expense pressures that could filter through to consumers via higher prices.

Market Outlook

As markets head into the following week, several key themes emerge:

Federal Reserve Policy Path

Powell's Jackson Hole address set the stage for the September 16-17 FOMC meeting, with the Fed Chair likely to maintain policy optionality while acknowledging both labor market softening and persistent inflation pressures. The central bank faces the delicate task of supporting employment while ensuring inflation continues its descent toward the 2% target.

Technology Sector Recalibration

The technology sector's correction reflects a natural recalibration after months of AI-driven outperformance. While long-term AI investment themes remain intact, investors are becoming more discriminating about valuations and business models. The upcoming Nvidia (NVDA) earnings on August 27 will provide crucial insights into AI demand sustainability.

Cryptocurrency Market Maturation

The cryptocurrency market's $400 billion correction demonstrates increasing correlation with traditional risk assets and sensitivity to macroeconomic developments. The stabilization of Bitcoin (BTC.X) near $113,000 suggests a more mature market response to volatility compared to previous cycles.

Global Economic Coordination

Geopolitical developments, including potential Ukraine peace negotiations and ongoing US-China trade tensions, will continue to influence market sentiment. The interconnected nature of global supply chains and financial markets means diplomatic progress or setbacks will have far-reaching economic implications.

The week's events underscore the market's transition from a period of AI-driven euphoria to a more nuanced environment where traditional economic fundamentals, policy decisions, and geopolitical developments compete for investor attention. This evolution suggests a more mature but potentially more volatile market structure in the months ahead.

Disclaimers and Limitations

Keywords: earnings, #Best Stocks,
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