The financial markets stood strong against tariff pressures last month, with the S&P 500 hitting its 20th record high so far this year. That performance was driven largely by earnings surpassing expectations for the third consecutive quarter and resulting in widespread gains.
Small-cap stocks were the top performer in August, thanks in part to Fed Chairman Jerome Powell’s speech in Jackson Hole, where he hinted at a possible interest rate cut in September. This signaled upcoming relaxation of monetary policy in response to less-than-stellar jobs numbers, with inflation caused by tariffs determined to be the lesser of two evils against stagnation of economic growth.
Bond yields declined in August, with the policy-sensitive two-year Treasury yield falling 31 basis points to 3.64%. This is, of course, in response to overall expectations for upcoming Fed rate cuts, impacting the short end of the yield curve first with the long end less sensitive to day-to-day speculation.
We’ll dive into the details shortly, but first: a look at the numbers year-to-date.
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*Performance reflects index values as of market close on August 29, 2025.
Jobs down and inflation data mixed
The July employment report showed 73,000 new jobs – much lower than expected – while revised June and May jobs numbers were lowered by more than 100,000 jobs each. This could change for better or worse as the data continues to develop. Layoffs in the government sector have also yet to be counted, which could spell trouble for the US labor market. Manufacturing continued to contract in July with none of the major industries reporting expansion compared to four the previous month. Headline inflation held steady thanks to declining energy prices while core inflation was higher than expected, largely driven by increases in airline fares as well as used vehicle prices.
Fed hints at easing monetary policy
Fed Chairman Powell’s speech in Jackson Hole, Wyoming, helped close out the month with a bounce to near highs for the S&P 500. Current expectations point toward the conclusion of the FOMC meeting on September 17 as the likely date for an interest rate cut. The Fed’s dual mandate of maximizing jobs while minimizing inflation often requires picking a side. For now, long-term inflation expectations resulting from tariffs are below 2.5%, making poor jobs numbers the larger threat.
Bond prices reinforce Fed expectations
Intermediate and short-term Treasury prices rallied in August as yields fell. The 10-year Treasury fell 10 basis points, while the 2- and 5-year fell 31 and 23 points respectively. The 30-year Treasury yield increased by 5 basis points, which is in line with historical trends that put more emphasis on other market factors when influencing long-term bond rates. Investment-grade corporate spreads remained historically tight, and the municipal curve stayed steep.
Familiar topics dominated headlines
Tariffs and concerns surrounding the independence of the Fed both had their time in the spotlight in August. President Donald Trump suggested that pending tariffs on semiconductors could be as high as 300%, with a carveout granted to companies dedicated to manufacturing inside the US. Trump also sought to fire Federal Reserve Board of Governors member Lisa Cook on the grounds of alleged mortgage fraud. This sparked discussion over the independence of the Fed amid persistent pressure from the executive branch to cut rates. Earlier in the year, the Supreme Court had commented that the Fed is likely exempt from firings by the president, but left open question marks for future cases.
Ukraine-Russia peace talks unlikely to yield a quick result
August saw a pickup of diplomacy surrounding the war in Ukraine, but major sticking points remain between the two sides. Most prominent is Russia’s insistence on territorial gains resulting from the war, which are extremely politically unpopular for Ukraine. Although a peace deal could open the door for international mining companies to begin operating in the region, progress is expected to be slow.
International outlook
The Bank of England cut rates from 4.25% to 4.00% in August, a decision made only by the slimmest of margins after an unprecedented second vote. Future rate cuts are doubtful despite the UK economy’s sluggish growth, as inflation remains problematic. Japanese stocks hit another milestone last month, with the Nikkei 225 achieving an all-time high closing above 43,000 for the first time. Chinese equity markets made progress as the Shanghai Composite registered its highest levels in a decade thanks to the technology sector.
The bottom line
Markets often sway with the headlines, especially when political noise dominates the news cycle. We’ll continue to stay alert to tariff and inflation developments, which are key drivers of rate volatility.
- By the end of 2025, we expect a slowing of economic growth in the United States, but not a recession.
- We expect U.S. equities to be volatile for much of 2025. Returns should be positive, but more in line with historical averages, as well.
- We believe that interest rates will continue to fall in 2025.
- Cash is king and Bonds are back. We would look to add traditional fixed income, particularly money markets & short-dated bonds, for safety and stability for 2025.
- We recommend investors continue to consider an overweight of alternative investments, including both private equity and debt.
- Gold has reached our current target of $3,300 per ounce, topping out at $3,500.05 on April 22, 2025. We are currently holding our target at $3,300, and expect gold to consolidate between $3,150-$3,500 per ounce for the time being.
- Cryptocurrencies soared in 2024 and have had a volatile start to 2025. We expect continued volatility, but further appreciation in 2025.
- Depending on your timeframe, current investment strategies should be based on what’s happening “Now,” “Next,” and “Later.
- Don’t panic. Be patient. Look to profit.
As always, we are dedicated to helping you achieve your financial goals and appreciate the continued trust you place in us. If you have any questions about this report or need assistance with anything, please feel free to contact us. We look forward to connecting with you soon!
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