At TM3 Wealth, it is important to us that you stay informed about the forces shaping today’s markets. Here’s what we believe deserves your attention this month. If you have any questions or would like to discuss these topics further, please reach out to your advisor.
Equity markets surged in the first half of August, driven by a strong earnings season and growing optimism that the Federal Reserve will cut rates in September. Mid and Small Cap stocks led the rally as investors largely shrugged off mixed and at times troubling economic signals. Many market participants are betting that fiscal stimulus from the Big Beautiful Bill and potential monetary easing will cushion the impact of rising tariffs and ongoing trade uncertainty. Consumer spending remained resilient in July, with retail sales rising 0.5%1. However, sentiment weakened in August, while one-year inflation expectations climbed to 4.9%2.
The labor market is the major economic focus after the July Non-Farm Payrolls report showed just 73,000 jobs added, well below expectations, and substantial downward revisions erased 258,000 jobs from the prior two months3. The downward revisions triggered political fallout, resulting in the firing of the head of the Bureau of Labor Statistics. The Trump Administration immediately nominated a well-known critic of the BLS, which has caused concern among many economists that data integrity or transparency may be issues going forward. Meanwhile, inflation remains persistent, with July’s CPI up 0.2% month-over-month and 2.7% year-over-year4. Despite inflation staying above the Fed’s 2% percent target, it’s likely they will be forced to cut rates in September due to concerns the jobs market needs support.
Bond investors continue to “wait and see” what the impact of any rate cut might mean for valuations. The first two weeks of August have been flat, which is normal during periods of rising stock prices. It’s normal for fixed income prices to move upward in advance of a rate cut and normalize afterwards, so the next 30 days could be good. Mortgage rates also dropped to the lowest point of the year, falling approximately 50 basis points from January, offering some relief to housing markets. Overall, we continue to see bond’s primary role is to provide attractive yields and provide diversification during periods of market unrest.
The bottom line: Markets are holding up on the hope of rate cuts and continued consumer strength, but challenges are accumulating. Persistent inflation, weakening labor conditions, and rising tariffs are creating a more uncertain backdrop. Investors should stay cautious as volatility may rise while the Fed considers its next move.
Sources:
- United States Census Bureau, https://www.census.gov/retail/sales.html
- University of Michigan, https://www.sca.isr.umich.edu/
- Bureau of Labor Statistics, https://www.bls.gov/news.release/empsit.nr0.htm
- Bureau of Labor Statistics, https://www.bls.gov/news.release/cpi.nr0.htm
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The Bureau of Labor Statistics (BLS) is an agency of the United States Department of Labor. It is the principal fact-finding agency in the broad field of labor economics and statistics and serves as part of the U.S. Federal Statistical System. BLS collects, calculates, analyzes, and publishes data essential to the public, employers, researchers, and government organizations.
The United States Census Bureau (USCB) is a principal agency of the U.S. Federal Statistical System, responsible for producing data about the American people and the economy.
Market capitalization (or “market cap”) refers to the total value of a company’s outstanding shares of stock, calculated as share price times shares outstanding. Companies are typically grouped into large-cap (over $10 billion), mid-cap ($2–10 billion), and small-cap (under $2 billion) categories, which help investors assess risk and growth potential.
Nonfarm payrolls measure the total number of paid workers in the U.S., excluding farm employees, government employees, private household workers, and employees of nonprofit organizations.
The Retail Sales report, published monthly by the U.S. Census Bureau, measures the total receipts of retail stores from goods and services sold to consumers. It serves as a key indicator of consumer spending, which drives a significant portion of the U.S. economy.
The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.
Real personal consumption expenditures (PCE) measure total household spending on goods and services, adjusted for inflation. It is a key component of Gross Domestic Product (GDP) and a primary indicator of consumer demand in the economy.
The University of Michigan’s Consumer Sentiment Index is a monthly survey-based economic indicator that measures consumer confidence in the United States. It is compiled by the University of Michigan’s Surveys of Consumers and reflects consumers’ views on their current financial situation, economic expectations, and purchasing conditions.
