AUGUST 2025 MARKET INSIGHTS

By: DOUGLAS A. RILEY, CFA, PORTFOLIO MANAGER

July was another busy month on the tariff front. The big breakthrough was an agreement with the European Union. Like the “framework” deal with China, which was extended again, details of the EU tariff deal are vague with further negotiations pending but the broad stroke would hit goods imports from the EU with a 15% tariff. On August 1^st, the Trump administration went forward with implementing varying reciprocal tariffs on imports from all countries, to take effect on August 7^th, that also work out to around 15% on average. In July, the Treasury Dept. collected $26.6 billion of Customs Duties, compared to $6.3 trillion in June of 2025 and about $7 trillion per month on average in the five years prior to the April 2025 tariff announcement¹. Allowing for exemptions and assuming the new tariff regime sticks, a 12% average effective tariff on all goods imported to the US could add an incremental $3.5 trillion to the US Treasury over the next 10 years.

Congress was also busy in July, passing two significant pieces of legislation with long-term implications. First, the GENIUS Act officially established a regulatory framework for private Stablecoins (a digital payment vehicle pegged 1:1 to the US dollar) and declared them to not be a security, helping to clarify regulatory authority. A related bill, the CBDC Anti-Surveillance State Act (CASA) explicitly prohibits the Federal Reserve from issuing a central bank digital currency. Taken together, the two bills legitimize the issuance of private digital coins and prevent the central bank from issuing a “digital” dollar traceable to an individual. The GENIUS Act is now law while CASA passed the House but is still in the Senate. One likely motivation for these legislative initiatives is to increase private commercial demand for US Treasury Notes, given the government’s heavy borrowing needs, as any Stablecoin in circulation must be fully backed by liquid US government assets and redeemable in cash.

The bond market had an up-and-down month in July, with the 10-year Treasury note settling 14 basis points higher at 4.37%². Rates were up in the first half on positive payroll data, a drop in the Unemployment Rate and a jump in job openings (JOLTS) along with hotter than expected CPI data. In the back half of the month rates fell to surprisingly soft PPI numbers, continued softness in home sales and weaker manufacturing activity. The Bloomberg US Treasury Index returned -0.39% for the month and the Bloomberg Aggregate Bond Index returned -0.26 %, bringing their year-to-date total returns to 3.39% and 3.75%, respectively2. Corporate credit spreads, at 31 basis points on July 31, remain near historic lows².

Equities, meanwhile, continued to rally, at least domestically. The Bloomberg 1000 Index (B1000) returned 2.19% in July led by large cap growth with technology stocks helping to drive a 3.10% total return for the Bloomberg 1000 Growth Index (B1000G)². Even small caps got in on the act, as the Bloomberg 2000 Index (B2000) recorded a total return of 1.81%². July’s laggards were the Bloomberg 1000 Value Index (B1000V, returning -0.25% and the Bloomberg World Ex-US Index (WORLDXU), returning -0.23% in July². Year-to-date the WORLDXU Index remains well ahead of all the major US benchmarks with a total return of 17.07%, while the small cap B2000 Index is still in the red at -1.23%². The US Dollar Index (DXY) rose slightly, and Gold took a breather from its first half run, slipping -0.40%².

As of August 1^st, 60% of Bloomberg 1000 Index constituents have reported earnings for the second quarter, posting an average sales surprise of 2.3% and an average earnings surprise of 10.0%, which compares favorably relative to historical data². Sales growth averaged 5.5% versus a year ago and average earnings growth was 10.3%, down slightly from the complete first quarter². If there is anything to quibble about in equity land (aside from valuation, which has been stretched for some time), it is the significantly higher than average participation of retail investors and a return to the Covid-Era ‘Meme Stock” craze, where small, speculative and heavily shorted stocks are experiencing extraordinary intra-day price moves spurred by online chatter. One need only look at the charts of Kohls (KSS), Krispy Kreme (DNUT), GoPro (GPRO) and Opendoor Technologies (OPEN) to get a sense of how extreme the action has been.

Following a weak first quarter report restrained by a huge negative net export figure, the government reported that GDP rebounded to grow 3% at an annualized rate in the second quarter. Further, the tax cuts included in the recently passed “One Big Beautiful Bill” should support a stronger economy going forward by providing a degree of certainty for business that helps planning and increases the likelihood of domestic capital investment and hiring.

August is typically not an exciting month for financial markets, as earnings season winds down, investors take vacation time, and the back-to-school season gets underway. August’s big macro event is the annual Economic Policy Symposium held at Jackson Hole Wyoming. This year’s topic is “Labor Markets in Transition: Demographics, Productivity, and Macro Policy.” Could there be any doubt that the buzz will center around Artificial Intelligence (AI) and its impact on the future of labor markets? If you are a fan of central bankers and economists discussing the latest academic research and debating policy, you may want to check it out. Or, if you prefer to skip such matters, enjoy the waning days of summer.

[1] Source: Monthly Treasury Statement (MTS) | U.S. Treasury Fiscal Data
[2] Source: Bloomberg