August 2025 Investylitics
Horizon Advisor Network Investment Committee August 8, 2025
Executive Summary
In July 2025, the US stock market saw continued gains, with the S&P 500 and Nasdaq reaching record highs. Several factors, including strong company earnings, easing trade tensions, and a resilient macroeconomic backdrop, fueled this positive performance.
We are about two-thirds of the way through the second quarter earnings season, and the S&P 500 is reporting unexpectedly strong results. Both the percentage of S&P 500 companies reporting positive earnings surprises and the magnitude of earnings surprises are above their 10-year averages.
The Federal Reserve's Federal Open Market Committee (FOMC) decided to maintain the target range for the federal funds rate at 4.25% to 4.5% at its July 30th meeting. This marks the fifth consecutive meeting that the Fed has kept rates steady at this level.
The jobs report on Friday substantially changed views on when and how much the Federal Reserve Bank may cut interest rates. Not only was the July number of 73,000 jobs created (vs. 104,000 expected) weak, but the May and June numbers were revised downwards by a stunning 258,000 jobs. However, the unemployment rate rose only slightly to 4.2%, similar to where it has been for the last year.
We would like to remind our clients that economic and policy uncertainty generally leads to headlines that can move the market up or down day-to-day. Staying disciplined with your diversifications and not reacting emotionally have been proven strategies during challenging and volatile times
The Horizon Advisor Network Investylitics Committee members met on the afternoon of Monday, August 4th, as markets were experiencing their first bout of volatility in more than two months. Over the last several weeks, we have seen continued trade and tariff uncertainty. However, there have been important deals reached with several of our important trading partners, such as Japan, South Korea, and the European Union. We also had a Federal Reserve Bank meeting, which concluded on Wednesday, July 30th, with no rate change for the fifth straight meeting. We also had an unexpectedly disappointing jobs report on Friday, August 1st, which added to market volatility. We were happy that all committee members were available to discuss their perspectives on the economic and political backdrop, as well as the outlooks from economists and market strategists we follow.
During July, the US stock market saw continued gains, with the S&P 500 and Nasdaq reaching record highs. Several factors, including strong company earnings, easing trade tensions, and a resilient macroeconomic backdrop, fueled this positive performance. There appears to be a tug-of-war between solid U.S. corporate earnings and the narrative that tariffs are hurting growth while lifting inflation. So far, second-quarter earnings results suggest that the strength of corporate America is winning, but questions remain about who will pay for tariffs. Early signs indicate a mix of consumers and companies. With corporate profit margins near all-time highs, it appears that companies have been able to absorb the tariffs without significantly damaging their profitability or raising prices. This is helping keep inflation numbers in check so far.
We are about two-thirds of the way through the second quarter earnings season, and the S&P 500 is reporting unexpectedly strong results. On a year-over-year basis, the S&P 500 is reporting double-digit earnings growth for the third consecutive quarter. In addition, S&P 500 companies are reporting strong numbers for revenues relative to analyst expectations and year-ago results. According to FactSet, for Q2 2025 (with 66% of S&P 500 companies reporting actual results), 82% of S&P 500 companies have reported a positive EPS surprise, and 79% of S&P 500 companies have reported a positive revenue surprise. The blended (year-over-year) earnings growth rate for the S&P 500 is 10.3%. This is impressive considering that on June 30th, the estimated (year-over-year) earnings growth rate for the S&P 500 for Q2 2025 was 4.9%.
Source: FactSet
The Federal Reserve's Federal Open Market Committee (FOMC) decided to maintain the target range for the federal funds rate at 4.25% to 4.5% at its July 30th meeting. This marks the fifth consecutive meeting that the Fed has kept rates steady at this level. The markets widely anticipated this decision. However, the vote was not unanimous. Two Fed governors, Michelle Bowman and Christopher Waller, dissented, preferring a 0.25% rate cut instead. This was a rare occurrence, with multiple governors dissenting for the first time since 1993.
Chairman Jerome Powell indicated that the Fed believes the economy remains in a solid position but wants to further assess the impact of recent tariff policies on inflation and the labor market before making any policy changes.
Since early June, the markets had traded in a very orderly and tight range, not experiencing a rise or drop of more than 1% on any day over that time frame. All of that changed with the release of the July unemployment report on Friday, August 1st. Not only was the July number of 73,000 jobs created (vs. 104,000 expected) weak, but the May and June numbers were revised downwards by a stunning 258,000 jobs. However, the unemployment rate rose only slightly to 4.2%, similar to where it has been for the last year, as shown in the chart below.
Source: Mortgage Bankers Association