August 2025 Monthly Market Update

Markets extended their gains through the end of August, with the S&P 500 rising 2.0% during the month, up 10.79% year to date. Technology and AI-oriented stocks led the way though gains broadened modestly thanks to healthy corporate earnings results and improving sentiment around monetary policy direction. International equities added 3.5% in the most recent month, taking year to date gains to 21.6% thanks, in large part, to continued weakening in the U.S. dollar which declined 2.2% in August, down 10% on the year. Shorter-term interest rates declined slightly more than longer term rates as growing expectations for Fed rate cuts weighed on the short end while growth and inflation questions factored into the long end. Corporate credit risk has remained very complacent with high-yield and investment grade spreads tight and compressing further. Oil prices fell marginally in August and have been relatively flat on the year while gold and silver continued to shine, now both up over 30% year to date.

The economic backdrop continues to reflect modest deceleration with few signs of a major contraction. Labor market data through August confirmed a slower pace of hiring, with payroll gains of just 22,000, downward revisions to prior months, and relatively steady unemployment rate of only 4.3%. Inflation readings are accelerating but in line with market expectations with core PCE ticking slightly higher to 2.9% year over year, while headline PCE held at 2.6%. Consumer spending has remained supportive while business sentiment is mixed given the uncertain policy backdrop. Overall, both services and manufacturing surveys continue to signal expanding, not contracting activity.

On the policy front, markets digested several meaningful developments. The Federal Reserve left the Fed Funds rate unchanged in July and reinforced its data-driven stance but subsequently opened the door to the ‘transitory inflation’ camp, increasing odds of resuming their rate cutting cycle in September and beyond. Meanwhile, tariff taxes were ever present in the headlines with the courts striking down the Administration’s “reciprocal” tariffs while a barrage of “national security” tariffs under Section 232 were announced ensuring questions surrounding trade policy impacts on growth, inflation, and global supply chains will remain. Fiscal policy developments have been relatively quiet since the major budget bill passed in July but both the level of outstanding government debt and continued large budget deficits remain a potential long-term issue which bond market investors are closely monitoring.