Weekly Market Update: August 18, 2025

The negative impact of tariffs on consumer prices has yet to be seen. True, the last mile in the Federal Reserve’s effort to bring inflation closer to its target rate of 2.0% has been challenging, but overall price action has been rather controlled in the early summer months. Specifically, during July, the Consumer Price Index (CPI) and the core CPI, which excludes the food and energy components, rose 0.2% and 0.3%, respectively, matching the consensus forecasts. On a 12-month basis, the CPI and core CPI climbed 2.7% and 3.1%, respectively, with the latter figure coming in a bit hotter than expected. The worst case scenario has yet to materialize, but many economists expect more of an impact to be realized later this year. 

Meanwhile, second-quarter earnings season was a successful campaign for Corporate America. With nearly all of the S&P 500 companies reporting results, 80% have posted positive revenue and profit surprises. The average year-over-year earnings growth rate tallied nearly 12%, which easily exceeded the mid-single-digit consensus forecast and marked the third-consecutive quarter of double-digit gains for the Index. This performance was likely needed to support equities, while the Federal Reserve continues for now on its restrictive monetary policy course. 

The corporate world is more sanguine than most economists would have thought given the ongoing global trade upheaval. The recent announcement of a 90-day extension to the truce between the United States and China, as the world’s two-largest economies negotiate a trade deal, is an encouraging development. According to FactSet Research Systems, there was an 87% decline (from the first to second quarters) in S&P 500 companies that used the term “recession” on their earnings calls. Perhaps the announcements of new trade deals with major trading partners in Asia and Europe have quelled some concerns among corporate leaders. 

Conclusion: The major equity averages continue to grind higher despite some mixed economic growth signals and a hawkish monetary policy stance from the Fed. The advance has been powered, in part, by the artificial intelligence (AI) trade, but has also included some broadening of gainers beyond technology. Given this backdrop, we think a diversified portfolio led by equities remains the prudent investment course at this time. 

Source: ValueLine.com