Market Recap: August 2025

Market commentary

• Second-quarter GDP was revised up to 3.3%, driven primarily by stronger business fixed investment. However, expectations for growth in 2025 remain muted.
• Producer prices jumped 3.3% in July, suggesting that businesses are increasingly passing tariff-related costs onto consumers. Meanwhile, consumer prices continue to edge higher, with core Personal Consumption Expenditures (PCE) inflation reaching 2.9%.
• Although housing starts and existing home sales saw a modest rebound in July, the broader trend remains subdued. Builder sentiment has weakened, and affordability continues to be a major headwind amid elevated mortgage rates and home prices.

Select economic and market data

Equities

• Greater clarity around interest rates, combined with resilient corporate earnings, contributed to another strong month for equities.
• With eight of eleven sectors outperforming Information Technology and small-cap stocks showing strong gains, market leadership appears to be broadening.

Fixed income

• Powell’s recent comments have reinforced expectations for easing, with markets now pricing a 90% chance of a 25 basis point cut in September and potential for further reductions this year.
• Anticipating Fed action, bond yields fell in August—most notably in shorter maturities—driving strong fixed income returns.

Strategic outlook

• Some caution is warranted on equities in the near term, particularly in large-cap stocks with above-average valuations; currently favoring small-cap and mid-cap domestic stocks longer-term.
• Near-average expected returns are projected for fixed income with the Fed on pause and rates reflective of conditions.
• Above-average volatility is likely given central bank involvement and geopolitical uncertainty.