Labor Day marks volatile finish for S&P 500 near record high

August witnessed significant volatility in U.S. stock markets, particularly in the first week, but ended positively as fears regarding the economy eased. The S&P 500 index rebounded from an 8.5% decline that began in mid-July, closing just 0.3% shy of its all-time high. This recovery was driven by gains in interest-rate-sensitive sectors, including real estate and utilities, while the energy sector lagged behind. The S&P 500 finished the month 2.3% higher, reflecting a broader market recovery. The Federal Reserve's shift from a tightening to an easing bias contributed to the market's positive momentum. Investors began to anticipate potential interest rate cuts in September, with two-year swap rates falling significantly. The 30-year mortgage rate also dropped to 6.44%, down from over 7% earlier in the summer, indicating a more favorable borrowing environment. In the foreign exchange market, the U.S. dollar weakened against major currencies, suggesting a broader acceptance of lower interest rates. Economic indicators such as ISM Services and retail sales exceeded expectations, alleviating concerns about rising unemployment. Consumer spending was revised upward, contributing nearly 2% to GDP growth, which was a positive sign for retailers. Despite high valuations across asset classes, the immediate outlook for investors has improved, with reduced fears of inflation resurgence and the Fed's commitment to supporting the labor market. This environment has fostered a more optimistic sentiment among market participants, paving the way for potential growth in the coming months.