- Q2 2025 real U.S. GDP growth was revised up 0.3% to 3.3% in the most recent Bureau of Economic Analysis estimate, marking a sharp rebound from the -0.5% contraction in Q1.
- The rebound in Q2 was driven by strong consumer spending, a downturn in imports, and a surge in business investment, especially in artificial intelligence infrastructure.
- Real final sales to private domestic purchasers, a key measure watched by the Federal Reserve that strips out trade distortions by measuring sales of domestically produced goods and services to domestic households and businesses, was revised up to 1.9%, significantly above the previous estimate of 1.2%, indicating robust core domestic demand despite tariff turbulence.
- Another weak jobs report showed the U.S. economy added only 22,000 jobs and unemployment ticked higher from 4.2 to 4.3% in August, as initial jobless claims hit a three-month high and job seekers have started to outnumber openings.
- Despite goods prices moderating, core PCE increased by 0.3% in July and 2.9% year-over-year driven by services prices jumping 3.6%. The headline figures, which include food and energy, came in at 0.2% and 2.6%, respectively.
- August ISM Manufacturing PMI showed that U.S. factory activity remained in contraction territory for a sixth straight month, though there were a few positives in the report like new orders expanding for the first time in 2025.
- Despite dipping to start the month, U.S. equities had a strong August with the S&P 500 returning 2.0% and the Russell 2000 surging 7.1% as expectations of a September interest rate cut acted as a stronger tailwind for more rate-sensitive small-cap stocks.
- Internationally, developed market (+4.3%) and emerging market equities (+1.5%) were also additive to portfolios and continue to meaningfully outpace domestic stocks year-to-date.
- A weakening U.S. dollar continues to be a significant tailwind for international stocks as the greenback remains down over 9.0% in 2025 after falling ~1.5% in August, effectively erasing the gains from its July bounce.
- Within fixed income, core bond returns were modestly positive in August as Treasury yields drifted lower into month‑end, with the yield on 10-year Treasuries falling from ~4.37% to ~4.23%, supporting duration‑sensitive sectors.
- Municipal bonds finished slightly positive, weighed down by increased supply and fiscal uncertainties which led to weaker technicals and underperformance versus taxable fixed income.
- The FOMC will meet on September 16–17 to review policy rates with markets closely watching. While the data-dependent FOMC would prefer to see inflation cooling before lowering interest rates, Fed Chair Powell’s focus has recently shifted to the labor market, and the August data cemented market expectations for a 0.25% cut following the meeting.
- Regardless of the outcome, volatility may persist in coming months and investors are typically best served by aligning portfolios with overall risk tolerance and long-term financial goals while ensuring proper diversification both within and across asset classes.
