While the month of July saw a continuation of the stock market recovery from the early April lows, August 1st brought a new set of fireworks with the release of the labor market data from the Bureau of Labor Statistics. The month of July saw the S&P 500 up 2.2% but only to fall by 1.6% on that first day of August1. Tariff trade policy, deals, no deals and the impact on the economy all were in focus along with the Federal Reserve both in terms of their monetary policy reaction to everything and changes coming for the personnel make-up of the committee.
As a quick review, on April 2nd the President announced broad tariffs on almost 100 countries but then paused them all except on China on April 9th (though sharply reduced them) with hopes that deals would follow. What we’ve gotten since have been some frameworks of deals with Japan and the EU most notably, along with some outlines with some smaller countries like Vietnam and Indonesia. For those who did not make a deal by August 1st, they were hit with updated tariff rates but with also hopes for deals. Markets have been rallying robustly since April 9th on the belief that all of this would work out just fine, but Friday August 1st saw a disappointing jobs report that raised economic growth concerns which precipitated the market drop on that day.
This also came within a few days of the late July Federal Reserve meeting where the committee kept interest rates unchanged as expected but we did see two Governors dissent. Chris Waller and Michelle Bowman each wanted to cut rates by 25 basis points over worries about the jobs market which were vindicated just a few days later. The softer jobs figure definitely raises the prospect that the Fed will most likely cut rates at their September meeting. Also, of note with the Fed, Adriana Kugler, a Governor whose term was expiring in January, decided to resign the week that I write this in August so the President will have an opportunity to appoint a new member. The question will be if it’s someone he hopes will replace Jay Powell when his term ends in May 2026 or will it be someone who plans to fulfill their 14-year term as Governor.
After seeing the Q2 US GDP report, the first half of 2025 reflects an economy that grew 1.25% annualized and the reason why I combine the first two quarters is to smooth out the impact of tariffs and the timing of their implementation because of the front running and inventory building that took place in response2. With regards to the jobs report that drove the firing of the head of the Bureau of Labor Statistics, the 3-month average job gain through July is 35k vs the 6-month average of 81k and the 12-month average of 128k3. This includes the government workforce, both federal and state/local. If one chooses not to rely on this, ADP in its private sector job figure for July said its 3-month average is now 37k vs the 6-month average of 67k and the 12-month average of 130k. So, a similar trend for both4.
In addition to market participant hopes that tariffs would end up working out with limited economic impact, though with mixed evidence seen so far, the stock market also got a boost from the second wind with the Generative AI tech trade, led by the builders of it like Nvidia, Microsoft, Meta and other supporting infrastructure companies that are contributing to the physical construction of data centers, providing power, equipment, etc.. The extent of the capital expenditure being undertaken are truly astounding in terms of size to the point where some of the big hyperscalers are spending about 35% of their annual expected revenue this year on CapEx vs about mid-teens just a few years ago5. In total dollars, some expect about $300 billion in CapEx this year dedicated to the GenAI investments.
In fact, the CapEx spend on GenAI has been a major contributor to US economic growth, along with still large government spending, though its pace might slow, and upper income spend, with a lot on travel and leisure. Other parts of the economy like housing, manufacturing, capital spending ex AI, and global trade are more muted. And now we have a slowing labor market.
On the day of the soft jobs data, we saw a sharp rally in Treasuries and drops in rates across the US yield curve. This came after longer term interest rates had been sticky with the 10 yr. yield just below 4.50% and the 30 yr. around 5% for most of the month6. This also was coincident with longer term rates around the world that were elevated, particularly in Japan, the UK, Germany and France as investors have become more cautious on taking on too much duration after the tough last few years doing so. The European Central Bank has been aggressive in cutting rates, but they took a pause in July with their current deposit rate of 2%, which is about in line with where its consumer price index is at. Some other central banks took pauses too after a recent set of cuts.
We watch closely with interest rates what the Bank of Japan does because its actions do flow through the rest of the world. While they kept rates unchanged at their late July meeting, we do expect a rate hike or two before year end as the citizenry in Japan is not happy with higher inflation. This was obvious when seeing that Prime Minister Shigeru Ishiba lost his Upper House parliamentary support in the recent election after losing the Lower House late last year. We were reminded again that people don’t like to see their cost of living rise faster than their wages.
Looking at the investing landscape globally, international markets continue to have a great year with notable gains, helped too by the weakness in the US dollar. As of this writing in particular, the German DAX is up by 19% in euros and by 33% in dollars7. In contrast, a European buyer of the S&P 500 is down 4% because of the euro strength vs the US dollar that has offset the 7% gain in the S&P 500 in dollar terms8. There has been such an extraordinary outperformance of the US stock market over the years, mostly driven by big cap tech stocks and just maybe we’re in the midst of some mean reversion where foreign markets and even small and mid-cap stocks in the US, have a chance to play some catch up.
There are a lot of moving pieces to all the macro and how the micro is responding. Whether one agrees with the use of tariffs or not, they are a tax that businesses are having to manage. While some exporters to the US will absorb some of it, it looks like US business and consumers will end up eating most of it based on the earnings call commentary that I’ve been listening to too and some Wall Street investment bank estimates that I’ve read too. The mix of that, in terms of whether margins will get impacted and/or end consumer prices will get raised, is still early being seen but we’ll get further evidence of it in the quarters to come. On the positive side, hopefully we are close to getting more certainty about what the actual rates will be so we can then better plan.
Something I’ve been saying in previous letters but worth saying again. We all know the saying ‘markets don’t like uncertainty’ but life is always uncertain, it’s the only given outside of father time and taxes. History is replete with storms, but we’ve seen them time and again, both in the global economy and markets and we all find ways of powering through somehow. We also consider ourselves global investors and the world provides always a variety of opportunities and just maybe more so now than what we’ve seen over the past decade with the dominance of US markets.
Either way, whatever comes our way it remains vital that investors have adequate short-term liquidity over the next 2-3 years. Knowing that period is covered can help separate the balance of one’s portfolio from the ups and downs of the market. Time horizon is always crucial and is always the best friend of any investor. This is how I’ve been ending all my letters as it continuously seems to be true.
Published on 8/5/2025
Approval# OP 25-1040
[1] Bloomberg [2] Bloomberg [3] ADP [4] Bloomberg [5] Bloomberg [6] Bloomberg [7] Bloomberg
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The market and economic data is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The information in this report has been prepared from data believed to be reliable, but no representation is being made as to its accuracy and completeness.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services.
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 Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell 3000 index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.
The Stoxx Europe 600 index also called the STOXX 600 is an indicator of the performance of the European stock market. It measures the performance of large mid and small-cap companies across 17 countries in Europe. The number of constituents is fixed at 600.
The Hang Seng Index is a freefloat-adjusted market-capitalization-weighted stock-market index in Hong Kong. It is used to record and monitor daily changes of the largest companies of the Hong Kong stock market and is the main indicator of the overall market performance in Hong Kong. These 82 constituent companies represent about 58% of the capitalization of the Hong Kong Stock Exchange.
Nothing in this material should be construed as investment advice offered by OnePoint BFG Wealth Partners or Peter Boockvar. This market update is for informational purposes only and is not meant to constitute a recommendation of any particular investment, security, portfolio of securities, transaction or investment strategy. No chart, graph, or other figure provided should be used to determine which securities to buy, sell or hold. No representation is made concerning the appropriateness of any particular investment, security, portfolio of securities, transaction or investment strategy. You should speak with your own financial professional before making any investment decisions.
Neither OnePoint BFG Wealth Partners nor Peter Boockvar guarantees any specific outcome or profit. These disclosures cannot and do not list every conceivable factor that may affect the results of any investment or investment strategy. Risks will arise, and an investor must be willing and able to accept those risks, including the loss of principal.
Certain statements contained herein are statements of future expectations and other forward looking statements that are based on opinions and assumptions that involve known and unknown risks and uncertainties that would cause actual results, performance or events to differ materially from those expressed or implied in such statements.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. The fast price swings in commodities and currencies will result in significant volatility in an investor’s holdings. International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets. The fast price swings in commodities and currencies will result in significant volatility in an investor’s holdings.
The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell 3000 index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.
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.
Precious metal investing involves greater fluctuation and potential for losses.
The information presented is for educational and informational purposes only and is not intended as a recommendation or specific advice. Cryptocurrency and cryptocurrency-related products can be volatile, are highly speculative and involve significant risks including: liquidity, pricing, regulatory, cybersecurity risk, and loss of principal. A cryptocurrency fund may trade at a significant premium to Net Asset Value (NAV). Cryptocurrencies are not legal tender and are not government backed. Cryptocurrencies are non-traditional investments, resulting in a different tax treatment than currency. Federal, state or foreign governments may restrict the use and exchange of cryptocurrency. The use and exchange of cryptocurrency may also be restricted or halted permanently as regulatory developments continue, and regulations are subject to change at any time. Cryptocurrency exchanges may stop operating or permanently shut down due to fraud, technical glitches, hackers, malware, or bankruptcy.