August delivered gains across both stocks and bonds, even with headlines focused on tariffs and questions over Federal Reserve independence. The S&P 500 climbed 2.0%, bringing year-to-date returns to 10.8%, while bonds also advanced. The resilience of markets stood out, particularly given signs of labor market weakness and the uncertain policy backdrop.
Markets
U.S. large caps rose 2.0% in August, while mid-caps gained 3.4% and small caps rallied 7.1%, turning positive for the year at +3.2%. Value stocks led with a 3.4% increase versus 1.3% for growth. International markets continued to shine, with developed equities up 4.3% in August and 23.3% year-to-date, while emerging markets rose 1.5% and are up 19.6% in 2025.
Fixed Income and Fed Policy
The Bloomberg U.S. Aggregate Bond Index rose 1.2% in August as shorter term Treasury yields fell, rewarding investors in the 2–4 year range. Long-term yields held steady, with the 10-year finishing at 4.2%. Markets were driven by Fed Chair Powell’s Jackson Hole remarks, which highlighted softening labor conditions. Despite inflation remaining close to 3% and the risk of tariff-related price pressures, investors now expect a September rate cut and see growing odds of another by year-end.
Economic Data and Earnings
Economic releases were mixed. Second-quarter GDP growth was revised upward to 3.3%, reversing a weak first quarter, but the jobs report showed only 73,000 positions added in July with large downward revisions to prior months. Unemployment held at 4.2%. Corporate earnings were stronger, with 81% of S&P 500 companies beating estimates—the best rate since 2023—demonstrating the adaptability of businesses even as tariffs and higher costs flow through.
Looking Ahead
August’s resilience across equities and bonds underscores the importance of staying diversified. With inflation easing and job growth slowing, the Fed may cut rates as soon as September, which could support markets.
However, September has historically been challenging, with the S&P 500 averaging a -4.2% decline over the past five years. Tariff and policy risks add to potential near-term volatility, making it essential to be disciplined and focused on the long-term. We continue to emphasize globally diversified portfolios with exposure outside of traditional stocks and bonds to withstand shifting market dynamics.
