August 25, 2025

“The most important quality for an investor is temperament, not intellect.” Warren Buffett

Federal Reserve Chair Jerome Powell opened the door for rate cuts next month when he said the labor market might be softening enough to rein in inflation that is being pushed up by tariffs. After the Markets treading water waiting for these remarks all week, here are the numbers. The S&P 500 finished the week up .34%, the Dow Jones Industrial Average led US Markets up 1.49%, the Nasdaq didn’t recover earlier losses finishing Down .56%. Internationally, the FTSE 100 had a great week up 2% and the MSCI-EAFE gained a little +.07%. The 2 Year Treasury paid 3.698% and the 10-year yield was 4.256%.

So, what happened? Market Watch reported U.S. stocks surged to fresh record highs on Friday, after Federal Reserve Chair Jerome Powell suggested the labor market may be weakening enough to require help in the form of a September interest-rate cut. The Dow Jones Industrial Average was up last Friday, soaring 846 points, or 1.9%, to 45,631.74, scoring its first record finish of the year. The S&P 500 gained 1.5% to end at 6,466.91, just shy of its prior record close of 6,468.54 on Aug. 14, while the Nasdaq Composite added 1.9%. Though the tone earlier in the week was hesitant, investors on Friday were back buying technology stocks. Mid-caps joined the buying frenzy adding +2.45%, as well as small-cap stocks +3.86%. Other rate-sensitive parts of the market could benefit from lower borrowing costs if the economy holds up. Before Friday, the S&P 500 fell for five straight days through Thursday, logging its longest losing streak since Jan. 2, according to Dow Jones Market Data. “Powell gave the market what it wanted it hear,” said Keith Lerner, co-chief investment officer at Truist Wealth. “That’s the bottom line.” The Fed chair, in his final speech at the Jackson Hole Economic Policy Symposium in Wyoming, said that “downside risks” to the labor market were rising and that a September rate cut by the Fed may be warranted.

Another impression from the Fed’s Remarks indicated Inflation concerns appeared to be taking a back seat to worries about the jobs market. After months of hand wringing about the inflation rates rising over Tariff concerns, maybe the FED now gets it, or more likely are reacting to the intense pressure from the administration and the Housing/Mortgage market. Powell also signaled an evolving stance on the impact of tariffs. During the last post FOMC meeting press conferences, the chair had been focused on the potential inflationary impact of tariff policy, and he appeared to take a step back from that stance today. The American Dream has been held hostage by the Federal Reserve insistence on maintaining and not cutting rates. With record revenue to the treasury increasing money supply, Trump’s economic team seems to be making their point.

What about Bonds? The U.S. bond market rallied last Friday on Federal Reserve Chair Jerome Powell’s Jackson Hole speech, with the drop in Treasury yields signaling that investors expect the Fed’s interest-rate-cutting cycle to resume in September.

The Fed can pretty well directly impact short-term lending rates, but please remember things like mortgages are more tied to the 10-year Treasury, which is a byproduct of the free market. This, plus the fact that the U.S. economy has had a very good run in the past several years, all are contributing to the optimism. For consumers, a rate cut of 25 basis points wouldn’t guarantee lower long-term interest rates for someone looking to finance a car or a home. That could be true even if the Fed cuts rates by 75 basis points this year, as some economists expect. The market is saying, ‘We expect some rate cuts coming here between now and the end of the year,’ we wouldn’t be surprised if we get three, with a cut of 25 basis points at each of the Fed’s remaining three meetings in 2025.

At the beginning of the year, we were cautiously optimistic about a 3 year Trifecta of good returns in the US Market. We still hold that opinion with the last month of the 3rd quarter upon us, the 4th may continue the run. Corporate earnings have generally been good.  Look to retailers who’s earnings have been mixed but, Walmart is absorbing much of the tariff cost increases in a bid to undercut competitors on price. TJX is snapping up excess inventory that other retailers ordered ahead of tariffs—and now need to offload. And Amazon’s delivery-network improvements helped get packages to customers faster and more cheaply. These are among the ways retailers are trying to ease the burden on stressed-out consumers and are winning over cost-conscious shoppers on price and convenience—and scooping up market share from rivals. As to the Tech sector, which has pulled back recently, today’s tech giants are still expected to post robust earnings growth in the next five years, outpacing the broader market. Second-quarter earnings results have been positive, quelling fears of a decline. Earnings were up a buoyant eight percent year-over-year last quarter, using the latest earnings data.

Finally, inflation, despite the bumps, seems to be somewhat under control. So, as this week begins with some fresh economic numbers and the President continues his drive for peace in Ukraine and the Middle East, all will bolster the US Markets at least psychologically.

Our position having been overweighted in International has been well rewarded and the US markets soldier on. The narrowed gap suggests market sentiment and fundamentals are roughly in balance and that equities have further room to run.

Mike