Market Returns August 2025

S&P 500: +2.0%  

S&P 500 Equal-Weight: +2.7%  

Dow Jones:  +3.4%  

Nasdaq: +1.6%  

MSCI EAFE:  +4.3%  

MSCI Emerging Markets: +1.3%  

Bonds (US Aggregate):  +1.2%  

 Economic & Policy Highlights  

Interest Rates & Fed Outlook  

• The Federal Reserve did not meet in August, but Chair Powell gave his annual speech at Jackson Hole, Wyoming. 
• He opened the door to interest rate cuts based on concerns over labour market weakness  
• Markets quickly began discounting a minimum of two rate cuts by year-end 
• 2-year bond yields fell 32 basis points, but 30-year bond yields rose 4 basis points   
• Inflation (CPI) remained hot and above the Federal Reserve’s target with services such as airfares, insurance, medical and dental costs pushing higher 
• Trade & Tariffs  
• President Trump boosted tariffs across the world on August 1  
• The price impact of tariffs remained elusive as some companies reported cost pressures while others did not. 
• Interestingly, industries affected by tariffs were seen cutting employees, which may be how they are managing margins 

Employment & Growth  

• ISM industry surveys showed moderate expansion but continued to point to contraction in employment  
• Second-quarter US GDP was revised higher from 3.1% to 3.3%, expectations are for 3% in the third quarter  
• Global growth overall continues to track positively with the US remaining a cornerstone.  The Eurozone continues to muddle along just staying above recessionary levels.  Meanwhile China is frantically enacting multiple policy initiatives to arrest the deflation in their economy.  

Consumer spending & sentiment  

• Sentiment surveys remain weak overall but differ significantly based on the respondent’s political affiliation 
• Retail sales came in just a tick below expectations, but the data for June was revised substantially higher 
• Consumer spending remains supportive with both services and durables experiencing strength 
• A point of concern regarding consumer spending is the lack of balance, as high income earners account for much of the spending and growth  

Geopolitical Volatility & Energy  

• The price of oil fell 9% as concerns over a global supply glut grew 
• The price of gold rose 4.8% driven by central banks purchases and investor concerns over the US dollar 
• President Trump and President Putin met in Alaska, to kickstart peace negotiations regarding the war in Ukraine.  
• Both the French and UK government faced huge fiscal pressures as their growing deficits will require higher taxes, lower spending or possibly both   

Summary Impact  

• Major indices continued to grind higher driven by expectations that we are beginning a new rate cutting cycle 
• The Federal Reserve’s focus has now shifted from inflation (which remains well above target) to perceived cracks in the labour market 
• Performance of individual stocks broadened out based on anticipated easier financial conditions  

Commentary:  

Markets ended the month in the black as resilient earnings and the potential for future interest rate cuts drove optimism for risk assets.  AI remained a dominant theme as investors tried to position and capitalize on its expected exponential growth.   The decline in short term interest rates also helped to buoy sentiment towards mid and small cap stocks, which have been largely ignored by investors.  In fact, large cap technology stock outperformance relative to small/mid cap technology stocks hit a 30 year high in August.  Lower interest rates can be a two-edged sword for smaller companies as they tend to be forced to borrow money at short term variable rates which is a tailwind when rates are falling. Unfortunately, if rates are falling because the economy is weakening, those same smaller companies tend to feel the economic impact first and hardest. 

Of note in August was the Bank of America Fund Managers Survey which contained three key conclusions.  91% of fund managers said US stocks were overvalued, a level last hit in 2001.  95% of fund managers saw a soft or no landing for the US economy and fund manager inflation expectations were at 3-month highs. 

Given the current market dynamics of historically high valuations, complacency towards risk (both VIX and MOVE indices close to lows), extremely tight credit spreads and elevated risk-taking behaviour of retail investors.  We see the margin of safety in risk assets as being low overall, we will remain disciplined and selectively deploy cash as opportunities arise.