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More Blog PostsAugust 2025 - Market Update
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- US stocks continued to top all-time highs, despite tariff and geopolitical uncertainties. US Smallcap stocks gained 7.15% for the month, outpacing both large & midcap stocks.
- Healthcare was the best performing sector in August, but is still the worst performing sector year-to-date.
- Investor sentiment received a boost on comments from Federal Reserve chair Jerome Powell, acknowledging increased risks to the labor market and signaling the Fed's readiness to adjust policy if conditions warrant it.
- On the flip side, markets are moving toward traditional safe havens like gold and silver, amid ongoing debate about the Federal Reserve’s independence and policy direction.
- Bond returns were mostly higher as labor market growth slowed, along with inflation, and expectations of a September Fed rate cut increased.
Data Dashboard
Stock Market
August concluded the end of the Q2 earnings season, with 81% of the S&P 500 companies beating earnings estimates. The Magnificent 7 stocks now account for over a third of the market capitalization of the entire S&P 500. Earnings for this group of hyperscalers were mixed, whereas consumer facing businesses reported passing on a greater proportion of tariff costs to consumers. Utilities was the worst performing sector for the month.
August saw a modest rotation out of the highly valued tech stocks, and more into value-oriented stocks. This could indicate investors re-positioned in higher yielding stocks before a potential Fed rate cut in September.
August Monthly Returns (by GICS Sector)
Bond Market
Expectations of further Fed rate cuts could open the door to opportunities across multiple asset classes. Lower borrowing costs not only support overall economic growth but also make it easier for companies to finance projects and enhance the present value of future cash flows. In fixed income, falling rates typically lift the prices of existing bonds issued at higher yields.
So far this year, bond yields have stayed within a relatively tight band, with the 10-year Treasury yield generally moving between 4.0% and 4.5%. Even if short-term yields fall in response to Fed cuts, many areas of the bond market still offer attractive levels of income. The U.S. aggregate bond index yields about 4.4%, investment-grade corporates 4.9%, and high-yield bonds 6.7%—figures that stand well above historical norms and provide meaningful support for diversified portfolios.
Economics
Recent U.S. economic data has painted a mixed picture, reflecting both strength and areas of weakness. GDP growth of 3.3% quarter-over-quarter and steady retail sales highlight resilient consumer activity, yet labor market softness and persistent inflation remain concerns. Consumer sentiment has improved from its April lows but still trails the highs reached earlier in 2025.
In July, nonfarm payrolls grew by 73,000—well below the 100,000 forecast. Adding to the weakness, prior job gains from May and June were revised down by a combined 258,000, pulling the three-month average to just 35,000, compared with 123,000 over the first four months of the year. The unemployment rate ticked up from 4.1% to 4.2%.
Inflation pressures also remain mixed. Headline CPI held steady in July at a 2.7% annual pace, while producer prices rose 3.3% year-over-year, sharply above the 2.4% forecast—suggesting that inflationary pressures could still work their way through to consumers.
Meanwhile, retail spending stayed firm, climbing 0.5% in July after a 0.9% gain in June. Strong auto sales and Amazon Prime promotions helped drive demand, easing some concerns tied to the slowing labor market.
August Economic Dashboard
Portfolio Changes
In our tactical ETF portfolio, we reduced exposure to Europe, and sold our Gold Miners position. We added exposure to US Solar stocks and South Korean stocks.
We reduced both duration and credit exposure in our tactical low vol portfolio in August.
As always, reach out with any questions or concerns.
Thanks,
The Friedenthal Financial Team