Knowledge Center
Market Currents – 8/8/25
- Markets Advance Despite Underlying Economic Questions. July saw equity markets steadily grind higher, with major U.S. stock indices reaching new territory. The recovery from April’s pullback was supported by a calmer trade tariff environment, solid corporate earnings, and continued enthusiasm around technology-related themes. Yet, the gains came against a backdrop of mixed economic signals, highlighting a growing disconnect between market optimism and on-the-ground fundamentals. While investors embraced the upward momentum, the quieter summer trading months may have obscured lingering questions about the economy’s true strength and trajectory.
- Fed Navigates Conflicting Economic Data. As expected, the Federal Open Market Committee (FOMC) left its policy rate unchanged at its July meeting, though the decision came amid crosscurrents in the economic data. On one hand, the latest inflation report showed a slight uptick, driven by price increases in tariff-sensitive goods. On the other, the early August employment report pointed to a notable slowdown in hiring. This difficult backdrop was further complicated by a charged political environment, including renewed public calls from the administration for rate cuts. For now, the Fed appears to be prioritizing caution, weighing inflation risks tied to tariffs against signs of labor market weakness – placing added importance on upcoming data in determining its future policy path.
- Q2 Earnings Season Surpasses Expectations. Second-quarter corporate earnings season delivered a meaningful tailwind for markets, with a strong majority of companies exceeding analysts’ forecasts. Results were largely supported by resilient consumer demand and disciplined cost control, with standout performances in the technology and financial space. While the headline results were encouraging, management commentary on the outlook was more measured. Executives pointed to uncertainty around future consumer demand and the cumulative effect of tariffs on the global economic outlook as key reasons for restraint.
- Trade Progress Reduces Near-Term Anxiety. Following months of tense negotiations, the U.S. secured new trade agreements with the European Union and Japan, providing a degree of relief to markets. The deals, which address tariffs on a range of industrial and agricultural goods, remove a significant source of near-term risk that had been weighing on investor sentiment. While the broader and more complex trade relationship with China remains a work in progress, these agreements were viewed as a constructive step toward stabilizing global trade dynamics.
- Market Outlook: A Disciplined Approach Remains Prudent. Just as we noted during this year’s earlier pullback that timing a market bottom is nearly impossible, predicting a top is equally challenging. At that time, we shifted from a defensive posture to selective offense, deploying cash into compelling opportunities that emerged. Now, following the market’s strong rebound over the past few months, we are applying that same discipline in reverse. While we see few immediate signs that the market is at risk of a sustained downturn, valuations appear somewhat stretched in the near term. We believe it is prudent to take profits in positions that have rallied sharply, allowing us to rebalance and modestly raise cash. This active and nimble approach, supported by a long-term perspective, positions us to navigate volatility and seize opportunities as they arise.