Weekly Market Update: August 11, 2025
The nation’s economy has been flashing mixed signals lately. On a positive note, GDP (gross domestic product) expanded at an annualized rate of 3.0% during the second quarter, after contracting earlier in the year. In addition, many economists expect further progress in the second half of 2025, and it seems unlikely a recession is on the near-term horizon. In contrast, the latest employment report showed some cracks may be forming under the surface. Specifically, only 73,000 jobs were added to the economy in July, which fell short of analyst expectations, and the unemployment rate edged up to 4.2%.
The Federal Reserve is in a difficult position. At its July meeting, the Fed held rates steady, while Chairman Jerome Powell provided hawkish comments and expressed concerns that the Trump Administration’s trade tariffs could prove inflationary. In addition, the latest PCE (Personal Consumption Expenditures) Price Index showed prices rose 2.6% in June, year over year, which was higher than expected, and above the Fed’s 2.0% target. Nonetheless, after the dismal July labor report (and downward revisions to the May and June employment numbers), the majority of investors now think that a quarter-point rate cut will be approved in September.
The second-quarter earnings season has provided much needed support. Almost 70% of the companies in the S&P 500 Index have already reported results, with the vast majority delivering upside surprises and providing relatively favorable guidance. The technology sector remains a major area to watch, given the excitement surrounding AI (artificial intelligence) applications. Certainly, many corporations are spending heavily on technology projects, in an effort to stay competitive. However, investors want to see that AI deployments will result in increased productivity and bottom-line gains.
The S&P 500 Index may be encountering some resistance. At the start of August, stock prices briefly sold off, sparking a sharp move up in the VIX (CBOE Volatility Index). From here, it remains to be seen if the market will pull back, or if the bulls will mount a buying campaign. In either case, many stocks seem extended and valuations look elevated, suggesting caution may be warranted.
Conclusion: In the current environment, we suggest subscribers maintain a portfolio of high-quality stocks, along with a healthy cash position.
Source: ValueLine.com
