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What moved markets in August
Markets reached fresh highs in August as both stocks and bonds contributed positively, despite ongoing questions around tariffs, Fed policy, and large-cap tech leadership.
- The S&P 500 rose 1.9%, the Dow 3.2%, and the Nasdaq 1.6% for the month. Year to date, the S&P 500 is up 9.8%, the Dow 7.1%, and the Nasdaq 11.1%.
- Core bonds advanced. The Bloomberg U.S. Aggregate Bond Index gained 1.2% as the 10-year Treasury yield ended near 4.2%.
- International stocks rallied. MSCI EAFE gained 4.1% in August and is up 20.4% year to date. MSCI EM rose 1.2% in August and 17.0% year to date.
- Inflation is cooling. CPI rose 2.7% year over year in July, while Producer Price trends suggest some tariff pass-through to consumers.
- The labor picture softened. July payrolls rose by 73,000 and prior months were revised lower, keeping unemployment at 4.2%.
Earnings strength outweighed headline noise
Day-to-day headlines can sway markets, but earnings and valuations drive long-term returns. In the latest season, 81% of S&P 500 firms beat estimates, the highest share since Q3 2023. This helped offset tariff uncertainty and concerns about high valuations. Mega-cap tech results were mixed overall, but better outcomes among several hyperscalers supported a late-month rally.
The Fed signal and why it matters
Markets increasingly expect the Fed to begin cutting policy rates in September after signs of softer hiring and a Jackson Hole speech that leaned more accommodative. The Fed’s dual mandate is to manage inflation and employment, and recent data tilt the balance toward careful easing.
Potential portfolio implications
Lower rates can support the economy, improve financing costs, and raise the present value of future cash flows for equities. For bond investors, falling yields typically lift prices of existing bonds issued at higher coupons. Broad bond sectors continue to offer attractive income: roughly 4.4% for the U.S. Aggregate, 4.9% for investment grade corporates, and 6.7% for high yield.
A balanced approach
Policy debates around tariffs, Fed independence, and Washington funding remain unresolved. Rather than reacting to each headline, we believe diversified portfolios that blend income and long-term growth are best positioned to weather volatility and stay aligned with personal goals.
Key takeaways
- U.S. stocks and core bonds both advanced in August.
- Earnings momentum stayed constructive, with 81% of S&P 500 companies topping estimates.
- Softer jobs data increased the odds of a September rate cut.
- Bond income remains attractive by historical standards across sectors.
- Diversification and long-term discipline are essential amid policy uncertainty.
FAQs
What drove August’s gains?
Earnings outperformance and the growing expectation of Fed rate cuts helped offset tariff and labor concerns, lifting both stocks and bonds.
Are valuations a problem now?
Valuations are elevated versus history, but healthy earnings growth has provided support. Staying diversified helps manage valuation risk across sectors.
How might rate cuts affect my portfolio?
Lower rates can boost bond prices and support equities over time, but outcomes vary by asset class. A balanced mix can help capture income and growth.
Should I adjust my allocation today?
Allocation changes should be based on your plan, time horizon, and risk tolerance. Short-term headlines should not outweigh long-term goals.
What is the outlook for international markets?
Developed and emerging markets both gained in August and year to date. Diversifying globally can broaden opportunity and manage risk.
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Disclosure
This material is for informational purposes only and is not intended as investment, tax, or legal advice. Investing involves risk, including possible loss of principal. Consult a qualified professional regarding your personal circumstances.