The major indices pushed to fresh record highs last week even as labor market data showed concerning signs of weakness. The equity market’s resilience in the face of deteriorating economic data has been driven largely by two forces: Artificial Intelligence (AI) enthusiasm and anticipation of more Federal Reserve rate cuts, counsels Michael Gayed, editor of The Lead-Lag Report.
The Dow Jones Industrial Average, S&P 500 Index (^SPX), and Nasdaq Composite all touched new peaks during the same period that initial jobless claims jumped to 263,000, their highest level since October 2021. The unemployment rate now sits at 4.3%, a development that’s getting more attention from both markets and policymakers.
The inflation picture remains mixed and creates a complex backdrop for Fed policy. The CPI accelerated to 2.9% year-over-year in August, up from July’s 2.7% reading. Core inflation measures continue to show persistent underlying price pressures, with core CPI holding steady at 3.1% year-over-year for the second consecutive month.
Yet technology and AI-linked stocks continue to power Wall Street’s main indexes higher, with the communications services sector jumping more than 20% year-to-date. Oracle Corp.’s (ORCL) recent performance provided a perfect example of this dynamic, with shares surging 36% in a single session after the company reported multibillion-dollar AI contracts with OpenAI.
That said, gold continued its advance, too. It reached a record $3,706 per ounce, which typically signals that investors are growing more cautious about the economic outlook. Despite these warning signs in both the labor market and safe-haven assets, equity markets have remained resilient, creating an environment where investors need to weigh conflicting signals carefully.
