August Market Chartbook

Sean Gross, CFP®, AIF®

Co-Founder & CEO

September 5, 2025

Click here to view our August Market Chartbook.

August Market Review: Stocks Hit Records Amid Fed Policy Shifts and Strong Corporate Results

Sean Gross, CFP®, AIF®

Co-Founder & CEO

September 5, 2025

Financial markets achieved record highs during August, with both equities and fixed income delivering positive returns for investors. This performance materialized despite ongoing concerns regarding trade policy, central bank autonomy, and technology sector valuations. The month opened with new tariff measures taking effect on major trading partners following the conclusion of a 90-day grace period. Subsequently, a federal appeals court determined these "reciprocal tariffs" violated legal standards, potentially setting up a Supreme Court review.

Mid-month turbulence emerged as investors worried the Federal Reserve might maintain elevated interest rates longer to combat inflation. Recent inflation data, including the Producer Price Index, indicated businesses were beginning to transfer tariff expenses to customers. Nevertheless, market optimism returned quickly thanks to stronger-than-anticipated corporate earnings and increased confidence the Fed would reduce policy rates at its September gathering.

Economic data presented a mixed picture. Second-quarter GDP growth received an upward revision from 3.0% to 3.3%, representing a substantial recovery from the first quarter's 0.5% contraction. Conversely, the monthly employment report revealed a sharp drop in job creation, with significant downward adjustments to previous months' figures. This prompted the White House to dismiss the Bureau of Labor Statistics Commissioner, contributing to the uncertain atmosphere.

Nevertheless, market volatility remained subdued compared to historical norms. August's robust results across asset classes highlighted the value of maintaining diversified portfolios with long-term perspectives.

Primary Market and Economic Developments

• The S&P 500 advanced 1.9% during August, while the Dow Jones Industrial Average climbed 3.2% and the Nasdaq increased 1.6%. For the year, the S&P 500 has gained 9.8%, the Dow has risen 7.1%, and the Nasdaq has appreciated 11.1%.
• The Bloomberg U.S. Aggregate Bond Index posted a 1.2% gain in August. The 10-year Treasury yield concluded the month lower at 4.2%.
• International developed markets surged 4.1% in U.S. dollar terms via the MSCI EAFE index, while emerging markets advanced 1.2% according to the MSCI EM index. Year-to-date, the MSCI EAFE index has climbed 20.4% and the MSCI EM index 17.0%.
• The U.S. dollar index finished the month lower at 97.8.
• Bitcoin declined in August, closing the month at 109,127 following a "flash crash" on August 24.
• Gold prices reached a new all-time high of $3,487 at month-end.
• The Consumer Price Index increased 2.7% year-over-year in July, matching economist forecasts.
• The employment report revealed only 73,000 new jobs were created in July. Major downward revisions to May and June data indicated the labor market performed much worse than initially reported. The unemployment rate held steady at 4.2%.

Strong corporate earnings drove market gains

Although daily news cycles and headlines may influence short-term market movements, underlying factors such as corporate earnings and asset valuations determine long-term portfolio performance. While equity valuations appear elevated relative to historical benchmarks, this is justified by companies that maintain robust earnings growth trajectories.

Recent earnings season data reveals that 81% of S&P 500 companies surpassed analyst projections, according to FactSet. This represents the highest beat rate since the third quarter of 2023, indicating that economic conditions and corporate fundamentals have proven more resilient than anticipated.[1] These results also highlight corporate adaptability as businesses navigate tariff implementation, manage increased costs, and identify growth opportunities amid policy uncertainties.

Significant investor attention has focused on the Magnificent 7, a collection of mega-cap enterprises, some with market capitalizations exceeding multiple trillions. This group now comprises more than one-third of the S&P 500, making their performance crucial for broader market direction. While earnings outcomes were varied across this group, several of these "hyperscalers" delivered results above expectations. Despite concerns about an "AI bubble," these outcomes helped fuel a market rally during August's latter half.

Rate reduction expectations build for the Fed

Meanwhile, consumer-oriented companies reported varied outcomes reflecting shifting household expenditure patterns. This situation has intensified with tariff implementation, as firms transfer a larger share of tariff expenses to end users. When combined with disappointing employment data, markets began pricing in more substantial rate reductions starting in September.

Federal Reserve Chair Jerome Powell delivered his clearest indication yet that the central bank stands ready to resume interest rate cuts after this year's pause, speaking at their annual Jackson Hole, Wyoming conference. The Fed operates under a "dual mandate" to maintain price stability and full employment. Recently, they have maintained relatively elevated interest rates due to persistent inflation and robust job market conditions. Therefore, initial indicators of labor market weakness could influence Fed decision-making toward cautious rate reductions.

Lower rates may unlock opportunities across investments

The possibility of further Fed rate cuts may generate opportunities across multiple asset categories. Beyond supporting broad economic expansion, reduced interest rates can improve corporate borrowing conditions, lower barriers to new initiatives, and enhance the present value of future earnings streams. For fixed income, declining interest rates increase the value of existing bonds that were issued with higher coupon rates.

Bond yields have traded within a tight range this year, with the 10-year Treasury yield typically moving between 4.0% and 4.5%. Even as short-term yields may fall with Fed rate cuts, numerous bond sectors continue offering attractive income levels. The U.S. aggregate bond index currently yields 4.4%, investment-grade corporate bonds 4.9%, and high-yield bonds 6.7%. These rates exceed long-term averages and strengthen diversified portfolios.

For comprehensive portfolios, investors should maintain focus on balancing various risk and return components. Issues including tariffs, Fed policy, and potential government shutdown risks in Washington represent just some challenges investors will encounter in coming months. Instead of responding to individual events, maintaining a portfolio capable of weathering these fluctuations while delivering both income and long-term appreciation remains the optimal approach for achieving financial objectives.

The bottom line? August delivered record market highs despite numerous policy uncertainties. Solid earnings and economic expansion continue supporting portfolios through persistent volatility.

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[1]https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_082925.pdf   

Navigating AI Investment Opportunities While Managing Portfolio Concentration

Sean Gross, CFP®, AIF®

Co-Founder & CEO

August 11, 2025

Today's investors face a compelling dilemma: how to capitalize on artificial intelligence's transformative potential while maintaining prudent portfolio diversification as markets reach record levels. Although it may be appealing to concentrate investments in recently successful companies, achieving long-term financial objectives demands a balanced approach that weighs both growth opportunities and risk considerations.

Large-cap technology companies, particularly those positioned to benefit from AI developments, are frequently grouped under the "Magnificent 7" designation. This collection includes Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta, and Tesla, which collectively account for approximately 35% of the S&P 500's market capitalization and rank among the eight most valuable companies globally. Many of these firms are also classified as "hyperscalers" because of their substantial computing infrastructure investments designed to support expanding AI applications.

During market cycles characterized by concentrated leadership among a limited number of stocks, investors benefit from examining historical precedents, current market valuations, and strategic asset allocation. Learning from similar periods of market concentration in the past can inform more effective decision-making regarding long-term investment strategies.

Technological advancement serves as a long-term market catalyst

While artificial intelligence and railroad development may appear unrelated, historical analysis reveals that revolutionary technologies typically follow comparable trajectories. During the 1860s, railroad companies commanded American markets in ways that mirror today's technology sector dominance. The Pennsylvania Railroad once held the distinction of being the world's largest corporation and, together with other railroad enterprises, represented a substantial portion of total market value. This naturally generated investor excitement and elevated valuations that would resonate with contemporary market participants.

This cyclical pattern has emerged repeatedly throughout financial history. The dot-com surge of the 1990s, when investors concentrated almost entirely on internet-based companies, offers perhaps the most relevant modern comparison. However, examining earlier periods reveals similar dynamics with the telegraph, electric power, and telephone industries that revolutionized urban centers and spawned numerous enterprises. Throughout the 20th century, electronics and computing innovations transformed every aspect of personal and commercial life, even preceding internet development.

These technological waves consistently followed a predictable sequence: initial doubt, swift implementation, market excitement, and ultimate integration throughout the broader economy. Railroad systems didn't vanish but evolved into essential components of transportation and logistics networks, supporting overall economic activity. Although many dot-com enterprises collapsed during the late 1990s and early 2000s downturn, numerous survivors emerged as today's technology industry leaders.

Regarding long-term investment strategy, success requires focusing beyond individual corporations to consider new technologies' impact on entire markets and economic systems. The genuine value of innovation lies in enhanced productivity and operational efficiency across all business sectors. The critical distinction is that while individual company stock prices may fluctuate rapidly, the complete economy-wide benefits require considerably more time to materialize.

Historical evidence demonstrates that valuations carry equal weight with growth prospects

 

Currently, the primary question isn't whether artificial intelligence will prove significant, but rather whether existing valuations reflect reasonable expectations. With the S&P 500 trading at 22.5 times earnings, approaching the historical peak of 24.5x, investors are accepting premium pricing that presumes these trends will maintain their current momentum.

What factors explain elevated valuations for the Magnificent 7? Initially, recent data indicates that U.S. private AI investment totaled $109 billion in 2024, with additional hundreds of billions committed for the current year. This figure surpasses the complete gross domestic product of numerous nations and significantly exceeds comparable international investments. During recent quarters, investors have responded favorably to announcements of increasingly substantial AI infrastructure expenditures. This represents a notable change from less than twelve months ago when investors questioned whether these major corporate investments would generate returns.

Additionally, widespread adoption of AI tools by businesses and individual users has created escalating demand for computational capacity. This explains why "hyperscalers" such as Microsoft and NVIDIA have experienced dramatic market capitalization increases, with both companies achieving valuations exceeding $4 trillion. This trend also accounts for why new data center development and the electrical power required for their operations have captured investor attention.

These corporations are perceived as constructing the foundational infrastructure that enables other enterprises to implement AI technologies, similar to how railroad companies built transportation networks that supported all 19th-century businesses. While this generates substantial long-term value, the timeframe for achieving investment returns remains uncertain.

The difficulty lies in markets frequently overestimating how quickly transformative technologies will produce profits, even when long-term potential appears genuine. The 1990s provide a relevant cautionary example. During that period, some investors concluded that conventional valuation measures no longer applied to internet companies. When actual results failed to meet projections, the Nasdaq declined 78% from its peak, and numerous firms either failed or were acquired. Nevertheless, the internet did reshape the economy, simply not within the timeline or manner that peak valuations suggested.

Managing growth potential alongside concentration concerns

Correspondingly, while the Magnificent 7 companies may have guided markets upward, they have also led during downturns. For instance, during 2022 when interest rates increased rapidly due to inflationary pressures, these stocks declined approximately 50% on average.

Given that the Magnificent 7 now comprises such a significant portion of major market indices, virtually all investors maintain positions in these stocks within their portfolios. For those who have emphasized technology investments, their portfolio weightings may exceed intended levels.

Maintaining excessive portfolio allocation in a limited number of investments is commonly termed "concentration risk," representing the antithesis of diversification. While these companies have exhibited growth and profitability, having substantial portfolio dependence on a small group of corporations, regardless of their success, can generate volatility as market trends shift. Even exceptional companies may experience periods of relative underperformance.

For context, consider the equal-weighted S&P 500 illustrated in the accompanying chart, which assigns identical significance to each company irrespective of market capitalization. This methodology has historically produced different return characteristics compared to the standard market-capitalization weighted index, occasionally outperforming when large companies encounter difficulties.

Since mega-cap technology companies have delivered strong recent performance, some investors may find it unexpected that an equal-weighted index has still generated superior returns over the past three decades. This underscores the importance of looking beyond recent market drivers and current headlines.

This observation doesn't suggest investors should completely avoid technology stocks. Instead, it emphasizes the significance of maintaining balance and appropriate asset allocation strategies.

The bottom line? Current AI developments present both opportunities and risks for investors. Investment success depends not on selecting winning stocks, but on maintaining flexible, diversified portfolio strategy that aligns with long-term financial objectives.

July Market Chartbook

Sean Gross, CFP®, AIF®

Co-Founder & CEO

August 5, 2025

Click here to view our July Market Chartbook.

July Market Review: Record Highs During a Turbulent Month

Sean Gross, CFP®, AIF®

Co-Founder & CEO

August 4, 2025

July witnessed the S&P 500 achieving ten fresh all-time highs, driven by robust corporate earnings results, steady economic indicators, and newly negotiated trade agreements before the tariff implementation deadline. The index recorded six straight record closing levels during the month's latter half, contributing to a 7.8% year-to-date advance for the S&P 500.

Nevertheless, market volatility and economic uncertainty emerged toward month-end. The July 31 tariff rate announcement has sparked worries about increased consumer costs. Furthermore, July's employment report disclosed that labor market conditions have been significantly weaker over the preceding three months than initially reported.

Given this backdrop, investors should maintain composure as markets respond to fresh trade policies and economic information. Recent months demonstrate how rapidly conditions can shift, reinforcing that a flexible, long-term investment approach remains the most effective strategy for reaching financial objectives.

Primary Market and Economic Developments

• July returns showed the S&P 500 advancing 2.2%, the Dow Jones Industrial Average climbing 0.1%, and the Nasdaq increasing 3.7%. For the year, the S&P 500 has gained 7.8%, the Dow has risen 3.7%, and the Nasdaq has advanced 9.4%.

• The Bloomberg U.S. Aggregate Bond Index fell 0.3% during July. The 10-year Treasury yield increased modestly to close the month at 4.38%.

• Global equities showed mixed results with the MSCI EAFE developed markets index dropping 1.5% while the MSCI EM emerging markets index climbed 1.7%.

• Second quarter GDP expanded at a 3.0% annualized pace, primarily due to renewed business investment activity and import changes related to tariff policies.

• The U.S. dollar index recovered from June's 96.88 close to finish July at 99.97, though it remains significantly lower for the year.

• Bitcoin reached a record high of $120,198 mid-month before concluding July at $116,491.

• Gold prices stayed elevated but remained below recent peaks, finishing the month at $3,293.

• Copper hit record levels due to specific tariffs but subsequently experienced its largest single-day decline of 22%.

• The Consumer Price Index increased 2.7% year-over-year in June, matching economist forecasts.

• July job creation totaled just 73,000 positions. Substantial downward adjustments to May and June data revealed the economy performed much worse than initially calculated. The unemployment rate held steady at 4.2%.

Equity markets achieved fresh record levels

 

The second quarter earnings reporting period that began in July continues delivering positive results, propelling markets to new heights. Although numerous companies have noted some tariff-related impacts, the effects have not been uniformly negative. Among the more than one-third of S&P 500 companies that have reported, 80% delivered earnings-per-share beats. The combined earnings growth rate now stands at 6.4% annually, which trails recent quarters but exceeds Wall Street analyst projections[1].

Artificial intelligence optimism boosted several Magnificent 7 names. Microsoft and Meta both delivered stronger-than-anticipated earnings while making substantial AI infrastructure investments. Consequently, Microsoft became the second company ever to achieve a market value exceeding $4 trillion, joining NVIDIA. Conversely, Tesla posted underwhelming second quarter results, pressuring its share price.

Although technology shares have experienced mixed performance in 2025, the Information Technology sector has gained over 13% year-to-date, trailing only Industrials which has returned more than 15% thus far in 2025. Health Care and Consumer Discretionary stocks have underperformed and remain negative for the year.

Fixed income markets saw relatively subdued activity, with bonds declining modestly overall. The Federal Reserve maintained rates in the 4.25% to 4.50% range for the fifth consecutive meeting, balancing tariff-related inflation concerns with economic growth considerations. Notably, two Fed governors opposed the decision for the first time since 1993, favoring a quarter-point reduction. This follows ongoing public disagreement between President Trump and Fed Chair Powell as the administration continues pressing for lower interest rates.

Post-meeting data revealed weakening employment conditions in July, with only 73,000 jobs created. Earlier reports received downward revisions, indicating 258,000 fewer positions were added in May and June than originally stated. The three-month average now equals merely 35,000 new monthly jobs, well below historical norms. This development suggests the Fed may need to prioritize the employment component of its dual mandate, raising the likelihood of rate reductions potentially starting in September.

Market participants monitor new trade agreements and tariff developments

Throughout July, the White House announced multiple new trade agreements, including arrangements with the European Union, Japan, and South Korea. Negotiations with China remain ongoing. These agreements prevent the worst-case outcomes many investors anticipated in April, though numerous other nations still face potentially elevated rates as negotiation deadlines approach. On July 31, President Trump signed an executive order establishing new tariff rates for various trading partners, effective August 7 (replacing the previous August 1 deadline), as illustrated in the accompanying chart.

According to Yale Budget Lab estimates as of July 23, consumers now face an overall effective tariff rate of 20.2%, the highest level since 1911. Thus far, companies appear to have absorbed much of this additional cost rather than transferring it to consumers. Whether this pattern continues depends on final tariff levels and companies' adaptive capabilities.

Congress enacted significant tax and cryptocurrency legislation

Bitcoin achieved new peaks in July as Congress evaluated fresh cryptocurrency regulation. The administration's perceived support for broader cryptocurrency adoption has generated Bitcoin gains in 2025. Additionally, the GENIUS Act, now signed into law, addresses stablecoins typically linked to the U.S. dollar.

On July 4, President Trump enacted comprehensive tax and spending legislation making numerous Tax Cuts and Jobs Act provisions permanent, including existing tax rates and brackets. The bill enhances investor certainty by preserving the current low-tax framework but raises questions about the growing national debt's sustainability.

The Congressional Budget Office (CBO) projects the legislation will increase the national debt by over $3 trillion during the next decade. While the bill included spending reductions to major programs, these were exceeded by tax revenue decreases. However, it should be noted that the CBO has a well-documented history of issuing wildly inaccurate forecasts which tend to overestimate the cost of tax cuts and underestimate the cost of spending programs.[2]

The permanent status of many tax modifications eliminates uncertainty that has influenced long-term financial planning, given that several TCJA provisions were set to expire this year. This development could support business investment and consumer expenditure in the near term.

The bottom line? Markets established numerous records during a volatile month featuring tariff uncertainty, new tax legislation, and earnings reports. Entering August, trade agreements and earnings results will likely continue capturing investor attention.

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[1]https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_072525.pdf  

[2] Dublois, H., & Carlsen, T. (2024, August 19). Scoring CBO’s Scores: Ten of the Worst CBO Blunders of the  21st Century So Far. Foundation for Government Accountability™. https://thefga.org/research/scoring-  cbos-scores-ten-of-the-worst-cbo-blunders/