The month of July started a strong rotation in markets away from the momentum and AI-related stocks. This led to a well-needed broadening of the markets through the month-end. As the calendar turned to August, markets became more volatile to the downside. Read more in this article from Capital Group, which outlines the causes and potential outcomes of these market conditions.

What started as a rotation away from technology expanded as several economic reports seemed to indicate a slowing economy. A certain amount of slowing is what the Federal Reserve wanted as it increased interest rates beginning in 2022. Concerns mounted that they had stayed too long at these elevated rates and that a deeper slowdown was approaching. No one knows for sure, but early reads on Third Quarter GDP still show solid economic growth. The job market has cooled but is still generating job growth, not outright declines. The unemployment rate has increased due to new entrants into the labor market, not the result of net job losses. All of this looks like how a soft landing would measure. We expect the Federal Reserve will soon be laying out its plan for lowering interest rates starting in September. The economy has no doubt slowed, but is not contracting, and as long as rates come down soon in a meaningful amount, the economy should avoid recession. Bonds, for the first time in several years, have begun to provide stability in portfolios. We expect that benefit to continue in the near term.

Read the full Capital Group article here

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