This past month, markets rallied in July as political uncertainty eased, and trade clarity improved. New agreements with some countries, along with the passage of the One Big Beautiful Bill Act (OBBBA), boosted sentiment. The Nasdaq recorded its strongest month since 1999, and the S&P 500 hit six consecutive all-time highs. Earnings season added support, with nearly 80% of S&P 500 companies beating expectations, led by tech and AI-related names. Emerging markets performed well thanks to stronger Chinese data and frontloaded tech capex.
Macro risks, however, remain. The U.S. labor market weakened, with downward revisions to job growth and lower participation. Treasury yields rose above 4.4% as markets digested firmer growth, sticky inflation, and fiscal concerns. Core PCE rose 2.8% year-over-year, still above target and showing little progress in recent months. While tariff-related effects on prices have been modest so far due to supply chain adjustments, that’s expected to shift in the months ahead.
Key Economic Readings (Actual vs Prior):
GDP (QoQ): 3.0% vs -0.5%
ISM Manufacturing: 48.0 vs. 49.0
ISM Services: 50.8 vs. 49.9
Unemployment: 4.2% vs 4.1%
Core PCE (YoY): 2.8% vs 2.8%
Fed Funds Rate: 4.25 – 4.50%
What We’re Watching in August
- Federal Reserve Policy (September Cut? 90% Odds)
The Fed held steady in July, but pressure is mounting. Key inflation readings and labor data will shape the likelihood of a cut next month. - Tariffs Back in Focus
Trump’s trade team is expected to reinstate select tariffs August 7th. Market participants are watching for potential retaliatory action and sector-level impacts. - Labor Market Softness Emerging
July’s job revision showed one of the largest downward adjustments in recent memory. All eyes now shift to the August nonfarm payrolls and unemployment rate. - Corporate Earnings Wind Down
So far, 78% of S&P 500 companies beat expectations. As earnings season wraps, forward guidance and margin commentary will be key drivers of sentiment. - Consumer Resilience vs. Reality
With rising delinquencies and weakening discretionary spending, August retail data and back-to-school trends will be an important temperature check.
Key Dates This Month
- Aug 7: Expected tariff announcement
- Aug 13: CPI (Inflation)
- Aug 14: PPI (Producer Prices)
- Aug 15: U.S. Retail Sales
- Aug 30: PCE Inflation Index (Fed’s preferred measure)
Looking ahead, the Fed remains cautious. A September cut is very much on the table if payrolls deteriorate, but labor supply constraints and inflation could delay easing. Meanwhile, crowded positioning in high beta stocks, elevated valuations, and rising cross-asset correlations point to fragility. While Q2 growth surprised to the upside, much of the strength was frontloaded. Slowing consumption, weaker capex, and policy uncertainty suggest a more challenging backdrop in the second half of the year.