Welcome to the monthly market update from Midland Wealth Management.  I’m Dan Zeigler, Senior Portfolio Manager.  Today I wanted to take a few moments to share the Investment Team’s views regarding the economy and financial markets.

Employment Update

The latest jobs report showed 73,000 new positions added to the economy, though prior months were revised sharply lower by roughly 258,000 combined jobs. May and June came in particularly soft, with just 19,000 and 14,000 jobs added respectively.

While the labor market is still growing, it is slowing from the 100,000 to 200,000 monthly gains we had become accustomed to in recent years. A key measure of tightness, the ratio of job openings to unemployed workers, has now fallen close to one-to-one, pointing to more balance between the supply and demand for labor.

Fed Policy, Jackson Hole & Inflation

This shift in the labor market was front and center at the Federal Reserve’s Jackson Hole summit. Chairman Jerome Powell struck an unexpected tone, signaling the Fed may soon prioritize employment stability over stubborn inflation pressures.

Markets now expect the first rate cut as early as the Fed’s meeting this month.

That said, inflation remains above the Fed’s 2% target. The Fed’s preferred gauge, Core PCE, still stands at 2.9%. Recent gains have been concentrated in services, particularly financial services, while goods inflation has stayed subdued.

This suggests tariff-related costs have not fully flowed through to consumers, with households shouldering about two-thirds of the increase so far. Looking ahead, markets are pricing in two additional rate cuts through the remainder of 2026.

Fixed Income

These policy expectations are already showing up in the bond market. After Powell’s remarks, the 2-year Treasury yield dropped 10 basis points to 3.69%—its largest one-day move in years.

Longer maturities have also eased, with the 10-year Treasury ending August at 4.25% after touching 4.33% earlier in the month.

For fixed income investors, this steepening curve underscores two dynamics: shorter maturities remain highly sensitive to Fed moves, while longer maturities reflect growth and inflation expectations.

Easier financial conditions typically benefit credit markets and liquidity-sensitive sectors. Mortgage rates have followed suit, with the 30-year fixed now around 6.5%—its lowest level since October 2024, potentially opening refinancing opportunities.

Equity Markets

Equities have also responded to shifting policy expectations. International stocks remain the standout performers, with developing markets up 23% and emerging markets up 19% year-to-date, aided by a weaker dollar.

Domestically, the S&P 500 delivered 12.4% year-over-year earnings growth, largely powered by mega-cap companies.

Still, smaller companies are beginning to rebound. Mid-cap gained 3.3% and small-caps 6.9% in August, outpacing the S&P 500’s 2.0% return.

Small-cap strength reflects optimism around lower borrowing costs, since these firms often carry higher levels of leverage and benefit disproportionately when rates decline.

Outlook

Looking forward, these three factors will drive markets: the pace of job growth, inflation trends, and Fed policy.

A clearer slowdown in employment would give the Fed room to cut more aggressively, supporting housing, small-caps, and credit markets. However, if inflation remains sticky, the Fed may soon be more cautious.

For investors, this backdrop calls for both patience and flexibility—being mentally prepared for volatility while remaining ready to take advantage of opportunities that often emerge when the policy cycle turns.

Thanks again for joining me for this month’s update and as always, please contact your advisor or relationship manager with any questions you may have.