Market wrap
week:
S&P500: +0.4% FTSE100: +2.0% Gold: +0.7%
ytd:
S&P500: +10.3% FTSE100: +12.9 % Gold: +29.4%
AI Selloff Knocks S&P 500, But Powell Sparks Relief Rally
Source: Connect Weekly | Week ending August 23, 2025
The S&P 500 endured a choppy stretch this week, dragged lower by profit-taking in crowded AI names and logging its longest losing streak since April 2024. But a dovish turn from Fed Chair Jay Powell at Jackson Hole on Friday was enough to reverse sentiment, sending equities sharply higher into the weekend. Both the S&P 500 and Nasdaq 100 remain close to record territory, while the Russell 2000 outperformed late in the week.
What drove markets this week?
Trading began with a whimper, Monday marking the quietest day since July 4 as volumes dried up. The calm ended abruptly Tuesday as AI-linked stocks tumbled, Palantir slid 9.3% and Morgan Stanley’s AI beneficiary basket dropped over 4%, dragging the Nasdaq 100 lower. Intel bucked the trend with a 6.9% pop on news of a $2bn SoftBank stake. By midweek, indices were still retreating but staged notable intraday reversals, suggesting dip-buyers were circling. Thursday brought the fifth straight daily loss for the S&P 500, hit by Walmart’s rare earnings miss and weakness in consumer staples. Relief came Friday, when Powell signalled the Fed was preparing to shift policy as inflation cools, boosting September cut odds to 90% and sparking a broad risk-on rally.
UK inflation surprise
In the UK, inflation accelerated more than expected in July, with CPI rising to 3.8% year-on-year versus 3.7% forecasts, the fastest pace since January 2024. Higher transport costs from holiday airfares, alongside fuel and food, drove the increase. With inflation now on track to hit 4% by year-end, pressure is mounting on the Bank of England to reconsider its easing bias, potentially complicating the UK’s relatively resilient equity story. Despite this, UK equities remain at all time highs, and continue to outperform US markets ytd.
AI momentum cracks
The standout theme was the reversal in high-flying AI names, which have dominated 2025 performance. The pullback saw popular growth favourites unwind as investors questioned stretched valuations. Still, the breadth beneath the surface was healthier than headline indices suggested, with most S&P 500 constituents rising even on Tuesday’s selloff, evidence that leadership may be broadening beyond the Magnificent 7.
Looking ahead
With Jackson Hole in the rear-view, the focus turns to whether Powell’s pivot translates into follow-through buying or if markets remain vulnerable to bouts of AI-led volatility. Next week brings PCE inflation data and the first of September’s manufacturing surveys, key inputs for a Fed now widely expected to deliver its first rate cut of 2025.
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