August 18, 2025

“Successful investing is about managing risk, not avoiding it.”

Ben Bernanke

Last week, the S&P 500 rose 0.94%, the Dow Jones Industrial Average led with a 1.72% gain, and the Nasdaq increased 0.72% (per Bloomberg). Internationally, the FTSE 100 climbed 0.47%, and the MSCI-EAFE rose 2%. The 2-Year Treasury yield stood at 3.775%, and the 10-Year yield was 4.322%.

U.S. stocks posted another winning week, though Friday’s trading saw the S&P 500 slip 0.3% from its record high set a day earlier. Technology shares drove the pullback, dragging the Nasdaq down 0.4%, while the Dow edged up 0.1%. On the corporate front, Warren Buffett’s Berkshire Hathaway disclosed a $1.6 billion stake in UnitedHealth Group (per SEC filings), boosting the insurer’s shares in early trading. Meanwhile, robust July retail sales data—up 0.5%, led by autos (U.S. Census Bureau)—highlighted resilient consumer spending despite tariff concerns. Looking ahead, investors will monitor the Federal Reserve’s minutes, corporate earnings, and tariff developments for fresh market catalysts.

On the economic front, U.S. wholesale inflation surged in July, driven by President Trump’s import tariffs. The Labor Department reported on August 13 that the Producer Price Index (PPI), which tracks inflation before it reaches consumers, rose 0.9% from June and 3.3% year-over-year, exceeding economists’ forecasts (per Reuters). On August 11, the Consumer Price Index (CPI) showed consumer prices up 2.7% year-over-year, unchanged from June but above April’s post-pandemic low of 2.3%. Core CPI, excluding food and energy, climbed 3.1%, up from 2.9% in June, surpassing the Federal Reserve’s 2% target. Falling gasoline prices (down 9.5% year-over-year) and slowing rent increases partially offset tariff-driven cost pressures, with many businesses absorbing costs rather than raising prices. Wholesale prices offer an early signal of consumer inflation trends, feeding into the Fed’s preferred gauge, the Personal Consumption Expenditures (PCE) index.

Turning to monetary policy, investors remain focused on whether the Federal Reserve will cut rates by a quarter-point or half-point at its mid-September meeting. Robust inflation reports haven’t shifted the debate to whether the Fed should cut rates at all. Corporate earnings for Q2 continued to roll out, with generally strong results. On the inflation front, the Bureau of Labor Statistics’ July CPI data showed a 0.2% monthly increase and a 2.7% year-over-year rise, matching Wall Street’s monthly estimate but slightly below the expected 2.8% annual increase. A 9.5% year-over-year drop in gasoline prices offset a 5.5% rise in electricity costs. However, core CPI, which excludes volatile food and energy prices, rose 3.1% year-over-year, above Wall Street’s 3% estimate and the highest since February. Over two-thirds of CPI components are rising faster than the Fed’s 2% target, signaling persistent inflation. Despite tariff-driven price increases, many economists view inflation spikes as temporary, giving the Fed room to cut rates amid a slowing economy and weakening labor market.

Social Security marked its 90th anniversary on August 14, but concerns about its sustainability persist. Proposals to strengthen the program include raising taxes on high earners and increasing the age for full benefits, effectively reducing payouts. Sen. Bill Cassidy (R., Louisiana) suggested borrowing $1.5 trillion to create a stock-invested trust fund, a proposal some view as partial privatization. Treasury Secretary Scott Bessent’s July comments likening Trump’s child investment accounts to a “backdoor to privatizing Social Security” drew criticism. “Unlike private savings, Social Security is a guaranteed earned benefit you can’t outlive,” said Nancy Altman, president of Social Security Works. Critics note the program’s structure, where current contributions fund current benefits, has long strained its finances, diverging from its original insurance-based design.

Consumer sentiment fell in August, with the University of Michigan’s index dropping to 57.2, a three-month low, from 61.8 in July. “Although trade wars have eased, higher tariffs are likely to restrain growth in the months ahead,” said survey director Joanne Hsu. “Consumers no longer expect the worst-case economic scenario feared in April but anticipate rising inflation and unemployment.”

In housing, the average 30-year U.S. mortgage rate fell to 6.58% from 6.63%, the lowest in nearly 10 months (Freddie Mac). This spurred refinancing, with mortgage applications up 10.9% week-over-week, driven by a 23% surge in refinance applications—the strongest since April (Mortgage Bankers Association). Adjustable-rate mortgage applications rose 25% to a 2022 peak, and cash-out refinancing hit a three-year high in Q2 as homeowners tapped equity gains from rising home prices.

As summer winds down and students return to school, markets have shaken off the summer doldrums with solid gains. A likely September rate cut, paired with strong corporate earnings and consumer spending, should sustain bullish momentum.

Mike