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August 04, 2025

Beacon Weekly Investment Insights 8.4.25

Chief Investment Officer, John Longo, PhD, CFA, provides insights to guide you through changing market conditions. Please read the full text below or download the PDF version.

The S&P 500 fell 2.4% last week, its worst showing since mid-May. There were two main reasons for the losses. First, President Trump surprised the markets with a new executive order placing tariffs on dozens of countries. The market has rallied in recent weeks partially on the assumption that tariff uncertainties were on the path to being resolved. Instead, we seem to be watching a repeat of the movie Groundhog Day. Second, the unemployment report released last Friday was surprisingly weak. Although the headline unemployment rate ticked up only from 4.1% to 4.2%, the number of jobs added surprised economists. Approximately 70,000 jobs were added in July, below the 100,000 expected. In addition, the number of jobs added over the May and June period were revised sharply downward by a whopping 258,000 jobs.

The Federal Reserve conducted one of its Federal Open Market Committee (FOMC) meetings last week. As expected by most market observers, the Fed kept short-term interest rates flat in the 4.25%-4.50% range. However, for the first time since 1993 two voting FOMC members dissented, instead favoring a cut in interest rates. The decision to keep interest rates flat is now being second guessed by many analysts in light of the weak jobs report and has further ramped up the pressure President Trump is placing on Fed Chair, Jay Powell. Futures markets are now pricing in an 80% chance that the first rate cut of the year will occur at their September meeting. There is no FOMC meeting in August, but Jay Powell is slated to speak at the Fed’s annual economic conference in Jackson Hole, Wyoming in late August.

Although the jobs report was perhaps the most consequential economic report last week, two other reports are worth mentioning. GDP grew in Q2 at a solid rate of 3.0%. Of course, this number follows a negative Q1 print of -0.5%. We believe the tariffs have skewed both of these numbers, but that the economy will expand over the course of the remainder of 2025 due to the tax cuts enacted in the One Big Beautiful Bill and the likely forthcoming drop in short-term interest rates. The Personal Consumption Expenditure (PCE) Index showed the Fed’s preferred inflation gauge increased 2.8% year-over-year, demonstrating that getting inflation down to the Fed’s 2% target is a stubborn challenge.

On the positive side, earnings reports have generally been good. Tech leaders Microsoft, Apple, and Meta (formerly known as Facebook) all announced strong earnings reports which also pointed to robust capital expenditures on artificial intelligence (AI). Hence, many AI stocks also received a boost. Amazon beat earnings expectations, but issued an outlook that disappointed some investors, resulting in its stock falling 7.2% last week. Warren Buffett’s firm, Berkshire Hathaway, is one of the few companies that releases its earnings reports on a weekend. Since Berkshire is one of the few remaining conglomerates in America, its operating performance is sometimes viewed as a microcosm of the U.S. economy. Its operating earnings fell 4% versus the prior period, hence another signal of an economy not clicking on all cylinders.

The economic calendar is not very busy this week, but a few reports may grab the attention of market participants. On Tuesday the Institute for Supply Chain Management (ISM) will release the Services version of its Purchasing Managers Index (PMI). The PMI Manufacturing Index continued to point to modest contraction, so investors will look for the services segment of the economy to pick up the slack. A negative reading for PMI Services may rekindle fears of sluggish growth and even recession. The U.S. Trade Deficit Report will also be released on Thursday. Given the Trump Administration’s focus on tariffs and balanced trade, this report has now become a “must read” for many analysts on Wall Street.

Two Federal Reserve Governors, Raphael Bostic and Michelle Bowman, will be speaking this week. Investors will look for signs of an imminent rate cut at the next Fed meeting in September, especially given the weak jobs report released last Friday. On Thursday, analysts will examine the U.S. Productivity and Consumer Credit reports. The former report may show some signs related to how artificial intelligence is improving company profits margins. The latter report may provide some signals related to consumer spending, the largest component of GDP.

 

Market Scorecard:	8/1/2025	YTD Price Change
Dow Jones Industrial Average	43,588.58	2.45%
S&P 500 Index	6,238.01	6.06%
NASDAQ Composite	20,650.13	6.94%
Russell 1000 Growth Index	4,349.06	7.59%
Russell 1000 Value Index	1,897.00	4.00%
Russell 2000 Small Cap Index	2,166.78	-2.84%
MSCI EAFE Index	2,606.40	15.24%
US 10 Year Treasury Yield	4.220%	-35 basis points
WTI Crude Oil	$67.26	-9.28
Gold $/Oz.	$3,360.10	29.43%