August Market Recap
It’s been a longer wait than expected for those anticipating lower interest rates, but markets provided some clarity on that topic in what proved to be another strong month for stocks.
All three major benchmarks moved higher in August, the fourth consecutive positive month for US equities. Corporate earnings again bested expectations, which helps justify loftier valuations. And if consensus estimates are to be believed, we are mere weeks away from a favorable change in monetary policy.
Nine of the 11 sectors in the S&P 500 delivered gains last month led by Materials (+5.6%) and Health Care (+5.3%). Only Utilities (-2.0%) and Industrials (-0.2%) were negative.
Benchmark Returns: August 2025 | YTD 2025
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Dow Jones
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S&P 500
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NASDAQ
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+3.20% | +7.05%
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+1.91% | +9.84%
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+1.58% | +11.11%
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The next meeting of the Federal Reserve’s Federal Open Market Committee (FOMC) is scheduled for September 17 and markets are assigning a 90% probability of a 0.25% cut to interest rates on that date. A month ago, the implied probability was closer to 60%. More than anything else, the move toward a near-consensus Fed outlook buoyed stock prices in August.
One particular Fed Governor, Lisa Cook, was also in the headlines last month. President Donald Trump is attempting to fire Cook, who claims the President does not have the legal authority to remove her. At stake is the Fed’s credibility, or at least the general assumption that our nation’s central bank acts independent of political pressures.
Trump has strongly voiced his preference for lowering interest rates, a policy the Fed has resisted so far in 2025 despite the president’s suggestion he might remove Fed Chair Jerome Powell prior to the end of Powell’s term. Financial markets have sold off on several occasions when Trump has threatened the Fed’s independence, which makes Cook’s potential termination another high-profile case worth watching.
Corporate earnings continue to exceed the bar. S&P 500 companies posted 11.9% year-over-year earnings growth in the second quarter, more than twice the 4.8% growth forecast as of June 30. The consistently strong earnings help quell concerns over pricey stock valuations. At the end of August, the S&P’s forward Price-to-Earnings (P/E) ratio sat at 22.4, near its highest point in 4 1/2 years.
It is encouraging to see the major benchmarks perform well even without big gains from Technology. Eight sectors increased more than Tech last month, which signals a broadening in this rally.
The outperformance of small-cap stocks is another trendbuster that could suggest a rotation away from the biggest Tech names and toward other equity styles. The Russell 2000 rose 7% in August in part because smaller companies are expected to benefit more from soon-to-be lower rates. As a category, Russell 2000 companies carry roughly fives times as much floating rate debt as companies in the S&P 500. Falling rates means more debt relief.
International equities also did better than US stocks last month, helped by a weakening US dollar. Non-US Developed Markets (MSCI EAFE) increased 4.5%. Emerging Markets were up 2.7%.
Short-term bond and money market yields decreased in August (Fed cuts looming) but longer-term bond yields rose higher. The latter was impacted by resurgent inflation concerns. The Personal Consumption Expenditures (PCE) index released in late August showed core inflation rose 2.9% annually, the fastest pace in five months. The 10-year US Treasury yield finished August at 4.23%.
US GDP growth for the second quarter was revised higher to 3.3% annualized (up from 3.0% originally).
On August 29, a federal appeals court struck down the Trump administration’s signature tariffs, ruling that the president does not have legal authority to implement such policies without Congressional approval. The judges, however, will allow the tariffs to remain in place through mid-October. It is possible the decision gets appealed to the US Supreme Court.
Ben Marks
Chief Investment Officer
Brett Angel
Senior Wealth Advisor
Investment Advice offered through Marks Group Wealth Management, a Registered Investment Advisor.
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The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.
The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.
Russell 1000 Growth Index measures the performance of those Russell 1000 companies with higher price to-book ratios and higher forecasted growth values.
Russell 1000 Value Index measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values.
The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell Index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.
MSCI EAFE Index consists of the following developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.
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