August 16, 2025 Market Update

U.S. stocks moved higher this week, showing resilience as investors largely looked past hotter-than-expected inflation data.  The market instead focused on a handful of stable corporate earnings reports, a rebound in housing-related data and consumer spending, despite some mixed signals from other sectors.  Expectations for a Federal Reserve interest rate cut, which could particularly benefit smaller companies heavily reliant on borrowing, provided a welcomed boost for small cap shares, which have lagged their large cap brethren for most of the year.   

The bond market was hampered by higher-than-expected inflation data (PPI) and weaker demand for Treasury auctions, leading to slightly higher yields for most Treasury bonds.  The yield curve steepened modestly, but spreads across most sectors were steady.

Investors have remained surprisingly complacent this summer in the face of several potential headwinds, including elevated valuations, shifting tariff policy, global political uncertainty, and a growing federal deficit.  But as fall and winter approach, I’ll be keeping an eye on a calendar filled with policy decisions and economic data that could challenge the current sense of stability.

Consumer prices rose 2.7 percent in July from a year earlier, matching June’s pace and in line with forecasts.  Core inflation, which excludes food and energy, picked up slightly to 3.1 percent.  Investors initially welcomed the steady headline reannouncement, with the major indexes setting fresh highs on expectations the Federal Reserve will begin easing policy next month.

But Thursday’s release of July’s Producer Price Index told a different story.  Inflation at the wholesale level jumping 0.9 percent from June, which constitutes the largest monthly gain in more than three years.  The increase pushed annual wholesale inflation to 3.3 percent, well above expectations.  Mr. Market trimmed his expectations for a half-point rate cut in September after the announcement, now viewing a smaller move as more likely.

While many consider low volatility and record-high stock prices to be a signal of market strength, they can also mask underlying risks.  Low volatility can persist for long periods, but it also tends to reverse quickly when conditions change.  Staying disciplined by keeping portfolios diversified and avoiding knee-jerk reactions can put investors in a stronger position to overcome sudden changes in market sentiment.

Please note that there will be no market commentary distributed next week.  Regular updates will resume on August 30th.  

That’s all for now.  Have a great weekend and invest wisely my friends.