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Market Brief: August 2025

August 1, 2025

The Markets (as of market close July 31, 2025)

The economy was generally solid in July, with the stock market continuing its upward trend from the second quarter, albeit with some volatility. Both the S&P 500 and the NASDAQ reached record highs in July, buoyed by strong corporate earnings and positive economic sentiment. For much of the month, large caps generally outperformed smaller companies, although the Russell 2000 managed to close July marginally higher.
 
Inflation remained "somewhat elevated." As of June 2025, the headline Consumer Price Index (CPI) was at 2.7% year-over-year, while core inflation (excluding food and energy) was at 2.9%. While headline inflation ticked up, core inflation on an annualized basis in Q2 was slower at 2.4% compared to 3.0% in Q1. The personal consumption expenditures (PCE) price index rose 2.6% since June 2024, 0.2% above the annual rate for the period ended in May. Core prices advanced 2.8% over the last 12 months, unchanged from the comparable period ended in May. The Federal Reserve's target inflation rate remained at 2.0%.
 
The U.S. economy showed signs of renewed growth in the second quarter of 2025 following a modest decline in the first quarter. The gross domestic product (GDP) rose 3.0% in the second quarter following a 0.5% contraction in the first quarter. Consumer spending rose 1.4% in the second quarter after ticking up 0.5% in the first quarter. Through the first half of the year, GDP's annualized growth rate is projected to be 1.3%. Trade policies continued to be a significant factor for the economy and investors. The market's deepest decline in 2025 occurred after President Trump's new tariffs announcement in April, though investor sentiment improved following delays or reductions in most tariffs. The International Monetary Fund (IMF) upgraded its global growth outlook for 2025, partly due to early stockpiling ahead of U.S. tariffs and lower-than-expected effective U.S. tariff rates. However, the IMF flagged downside risks if trade shocks worsen and warned that inflation could remain above target in the United States.
 
The labor market remained solid, with the unemployment rate staying historically low. In June, the Bureau of Labor Statistics reported 147,000 new jobs, with the unemployment rate dipping to 4.1%. This was higher than the consensus forecast and defied expectations of a rise. Wages rose 3.7% over the past 12 months ended in June. The number of job openings fell by nearly 275,000 in June to 7.4 million, which was roughly in line with expectations. The latest unemployment data showed total claims paid through mid-July increased by 72,000 from a year earlier.
 
According to FactSet, with roughly 34% of S&P 500 companies reporting, 80% of companies reported positive earnings per share (EPS). However, the year-over-year earnings growth rate for the S&P 500 is 6.4% thus far, which, if it holds, would be the lowest earnings growth rate since the first quarter of 2024. Communication services, information technology, and financials are sectors reporting annualized earnings growth, while six sectors, led by energy, are reporting an annualized decline in earnings.
 
The real estate market had mixed results in June, with sales of existing homes falling, while new home sales rose. Mortgage rates remained elevated. According to Freddie Mac, the average 30-year fixed-rate mortgage was 6.72% as of July 31, down 0.2% from the rate one week before and below the rate of 6.71% one year ago. The 30-year fixed-rate mortgage showed little movement, remaining within the same narrow range for the fourth consecutive week. Continued economic growth, along with moderating house prices and rising inventory, bodes well for buyers and sellers alike.
 
Industrial production advanced in June, while also increasing over the last 12 months. Manufacturing output and utilities each increased, while mining contracted in June. Purchasing managers reported manufacturing expanded in June, with operating conditions improving to the greatest degree in over three years. Activity in the services sector also expanded in June, but at a slower rate than in the previous month.
 
The bond market in July was primarily influenced by a combination of factors, including the Federal Reserve's monetary policy, economic data, geopolitical events, and ongoing tariff discourse. Ten-year Treasury yields closed the month higher, moving modestly throughout most of the month. The two-year note, which is more sensitive to Fed policy, closed July at about 3.9%, up from 3.7% at the end of June. The dollar index was muted for much of July, only to rise at the end of the month, while posting its first month-over-month gain of the year. Gold prices rose in July, marking their sixth straight monthly gain. Crude oil prices increased for the month, reaching six-week highs along the way. The retail price of regular gasoline was $3.123 per gallon on July 28, $0.041 below the price a month earlier and $0.361 lower than the price a year ago.


Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark the performance of specific investments.

Looking ahead

August is usually a relatively slow month in the market as investors focus on vacation plans before the end of the summer. However, it will be interesting to see whether, and to what extent, the White House is able to negotiate trade deals that would lead to the reduction of tariffs, most of which are due to take effect today, August 1st. 

Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI, Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). News items are based on reports from multiple commonly available international news sources (i.e., wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Forecasts are based on current conditions, subject to change, and may not come to pass. U.S. Treasury securities are guaranteed by the federal government as to the timely payment of principal and interest. The principal value of Treasury securities and other bonds fluctuates with market conditions. Bonds are subject to inflation, interest-rate, and credit risks. As interest rates rise, bond prices typically fall. A bond sold or redeemed prior to maturity may be subject to loss. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.

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