The Sun Shines Through the Shadows of August

August and September have historically been the worst months
for investors, specifically as measured by S&P 500 data compiled by the St.
Louis Federal Reserve.

Since 1970, August has averaged an advance of just 0.13%
(through 2024), the second-worst month, while September has recorded a loss of
0.91%.

A review of the historical market data can spark interesting
conversations.

It’s not unusual to spot patterns from time to time, but
what has happened in the past does not necessarily foreshadow what will come to
pass. There is no guaranteed outcome. In the end, market fundamentals or
unexpected events can easily override any trends we spot in the data.

Upward movement

As the month unfolded, many of the catalysts that spurred
new highs for the S&P 500 Index and the Nasdaq Composite this year remained
in place.

Fueled by growing expectations of a September rate cut, the
Dow surged to its first all-time high of 2025.

Source:
Wall Street Journal, MSCI.com, Bloomberg, MarketWatch
MTD returns: July 31, 2025—August 29, 2025
YTD returns: December 31, 2024—August 29, 2025
**in US dollars

Before we move ahead, let’s review the key catalysts that
have underpinned stocks.

• The AI
  story remains intact,
• Longer-term
  bond yields have remained relatively stable, especially regarding the
  benchmark 10-year Treasury bond yield,
• The
  Fed appears to be gearing up for a September rate cut,
• Corporate
  profits are rising—second quarter S&P 500 earnings are up an
  impressive 13% versus one year ago, according to LSEG,
• The
  economy continues to expand, and
• Many
  of the larger firms seem to have weathered the initial shock of the early
  April tariff announcement—so-called Liberation Day, though how tariffs
  will eventually be integrated and absorbed is unclear.

Specifically, let’s look at one event that led to an
846-point advance for the Dow and a record close of 45,632 on Friday, August
22.

We tend to avoid getting overly granular regarding a one-day
response by investors, but the conversation has broader implications.

On the morning of the 22, Fed Chief Jerome Powell, in
prepared remarks that lasted about 20 minutes, noted that “the shifting balance
of risks may warrant adjusting our policy stance.”

It was the signal investors had been waiting for. Why? Let’s
translate Powell’s “King James version” into modern-day English.

In essence, Powell’s remarks signaled that policymakers are
actively considering a rate cut in September because they are cautiously eyeing
the slowdown in job growth.

Sure, inflation hasn’t returned to the Fed’s 2% target, and
progress has stalled over the past year. But with job growth slowing, the Fed
is treading carefully, aiming to avoid curbing inflation at the expense of the
labor market.

Whether it’s a one-and-done cut in September (assuming the
Fed moves this month) or policymakers tweak the rate again later in the year
(there are three meetings left this year, including September) is unknown, but
all eyes are on the labor market, which could play a key role in shaping the
Fed’s next steps.

Separately, as the three-day Labor Day weekend began, an
appeals court ruled that most of the president’s tariffs are illegal, but they
will remain in place pending an appeal; the ruling largely upheld a decision
that was rendered in May.

Ultimately, much of the president’s trade policy may be
decided by the nine justices that make up the Supreme Court.

I trust you have found this review informative and helpful.
If you have any questions, concerns, or would simply like to have a
conversation, please don’t hesitate to reach out to me or any member of our
team.

Thank you for choosing us as your financial advisor. We are
truly honored by your trust and remain committed to serving you with integrity
and care.