US Equity Indexes Fall as Fed Rate-Cut Probability Fades Ahead of Powell's Jackson Hole Swan Song

04:44 PM EDT, 08/21/2025 (MT Newswires) -- US equity indexes fell at the close on Thursday as bets in favor of a monetary policy pause in September tripled ahead of Federal Reserve Chair Jerome Powell's pivotal speech at Jackson Hole.

The Nasdaq Composite declined 0.3% to 21,100.31, the S&P 500 fell 0.4% to 6,370.17, and the Dow Jones Industrial Average was 0.3% lower at 44,785.50.

All sectors except energy and materials were lower, with consumer staples emerging as the steepest decliner.

The August flash reading of US manufacturing conditions from S&P Global rose to a 39-month high of 53.3 from 49.8 in July, compared with an expected reading of 49.7 in a survey compiled by Bloomberg. The index indicates a return to expansion in the sector.

By late Thursday, the probability of the Fed leaving interest rates unchanged jumped to 27% from 7.9% a week earlier, according to the CME FedWatch Tool. The odds of a 25-basis-point cut in September stood at 74%, down from 92% a week ago.

"The Fed is worried about inflation accelerating as companies pass tariffs on to consumers," David Russell, global head of market strategy at TradeStation, told CNBC. "The [FOMC] minutes [released Wednesday] are consistent with Powell's hawkish comments last meeting. The bulls might get some cold water splashed in their faces at Jackson Hole."

Most US Treasury yields rose, with the 10-year yield up three basis points to 4.33% and the two-year rate climbing 4.8 basis points to 3.79%.

Walmart's (WMT) results also weighed on investor sentiment as a 4.5% drop in shares was among the worst in the S&P 500 and the Dow. The retailer's fiscal Q2 adjusted earnings missed consensus.

Further, in economic news, the pace of US existing home sales rose by 2% to a 4.01 million seasonally adjusted annual rate in July from 3.93 million in June, compared with an expected decrease to a 3.92 million rate in a survey compiled by Bloomberg, data from the National Association of Realtors released Thursday showed.

The seasonally adjusted number of initial jobless claims surged to 235,000 during the week ended Aug. 16, from the previous week's unrevised reading of 224,000, according to the Department of Labor. The consensus was 225,000 in a Bloomberg-compiled poll. The four-week moving average was 226,250, up 4,500 from the prior week's unrevised average.

"Job growth has slowed, but we do not see any evidence of increased slack in the labor market either," Jefferies Chief US Economist Thomas Simons said in a note. "The sideways drift in initial and continuing claims in recent months suggests that layoff activity is muted. The 'no hire/no fire' theme in the labor market remains firmly intact."

In geopolitical news, a potential ceasefire/peace deal in the Russia-Ukraine war is now fading.

ING said Russian Foreign Minister Sergei Lavrov's assertion on Wednesday that Moscow and Beijing would have to be part of any future security guarantees suggests the West and Russia remain far apart. Indeed, it seems that the next move for the US is to impose secondary sanctions.

"It is very hard, if not impossible, to win a war without attacking an invaders country," CNN reported President Donald Trump as saying in a Truth Social post. "It's like a great team in sports that has a fantastic defense, but is not allowed to play offense. There is no chance of winning! It is like that with Ukraine and Russia."

West Texas Intermediate crude oil futures jumped 1.1% to $63.41 a barrel as geopolitical risk increased.

Gold futures slipped 0.2% to $3,382.9 per ounce, while silver futures rose 0.9% to $38.09.

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