Asset Management
08/04/2025 Market Strategy
August 04, 2025
A Detour Need Not a Journey End
A Weak Jobs Report Sent Stocks Lower Last Week
Key Takeaways
- Equity markets sold off and bonds surged on Friday after a weaker than expected jobs report for July that also erased the bulk of gains for the prior two months.
- With two thirds of the companies of the S&P 500 having reported, profits are up 8.2% from a year earlier on revenue growth of 5.7%. Prior to the start of the season, Forbes put expected earnings growth at 4.8% from a year earlier.
- Six of the 11 sectors are seeing positive earnings growth, with three cyclical sectors (financials, information technology, and communication services) showing double-digit growth.
- This week 124 companies of the S&P 500 are scheduled to report; results of just six are due the week of Aug. 11 as the season winds down.
- The Q2 GDP report surprised to the upside (expanding at a 3% pace), though some of that strength stemmed from a bring forward of imports that sapped growth in Q1. The two measures of consumer confidence showed improvement in July.
Stocks entered the month of August with a stumble on back of the monthly non-farm payroll figures released last Friday. The July payroll gain came in much lower than economist survey expectations had looked for (73,000 versus 104,000).
Market participant disappointment was further compounded as two prior monthly jobs numbers (for May and June) came under revision subtracting some 258,000 jobs previously included in the numbers for those months.
A rate cut in September by the Fed could serve as a “down payment” for Wall Street and Main Street signaling that the tight policy era continues to be unwound.
Stocks took a haircut on the news as bears, skeptics, and nervous investors saw a catalyst in our view to take some profits without FOMO (fear of missing out) midst what has been a bullish rally from the April lows.
As of Friday’s close, the Dow Jones Industrial Average, the S&P 500, the NASDAQ Composite, the S&P 400 (mid-caps), the S&P 600 (small caps) and the Russell 2000 (small caps) were respectively off for the week: 2.9%, 2.4%, 2.2%, 3.5%, 4%, and 4.2%.
On a year to date basis, the Dow Jones Industrial Average, the S&P 500, and the NASDAQ Composite were respectively up 2.5%, 6.1%, and 6.9%. The S&P 400 (mid-caps), the S&P 600 (small caps) and the Russell 2000 (small-caps) as of as Friday’s close were respectively lower from the start of the year: 0.5%, 6%, and 2.8%.
It wasn’t just the jobs numbers that rattled investor sentiment and caused stocks to get roiled. Investors may also have registered a degree of concern tied to progress on tariff talk overall. In our view, this seems ironic since negotiations have seen some progress and even agreement from the trade talks between the US and the UK, Japan, the EU, and South Korea (among other countries).
Don't Forget the Fed
For all the focus on the July jobs number’s “surprise to the downside” and the downward revisions to the prior two months, a silver lining may be that the Fed may now be more inclined to cut its benchmark rate in September. Fed fund futures in fact jumped on Friday pointing to a greater chance for a rate cut in September.
It’s worth noting that the downside revisions announced last week may add support for the case for the Fed to make a modest rate cut in September (as little as 0.25% or even as much as 0.5%).
The Fed has shown great sensitivity for meeting its dual mandate in measuring out policy to manage both inflation risk and employment growth since it began the current rate hike cycle in March of 2022.
With its dual mandate to provide economic growth at a sustainable pace without producing levels of untoward inflation while maintaining job growth at a level considered to be “full employment” (an unemployment rate in a range of 3 to 4.2% to allow for the dynamics of normal changes in jobs) the time could well be right for a cut in September.
Curiously, should the Fed cut its benchmark rate in September it would be on or near the anniversary of its first cut last September that eased policy for the first time since its tightening regime began in March of 2022.
A rate cut in September by the Fed could serve as a “down payment” for Wall St. and Main St. signaling that the tight policy era continues to be unwound if not quite at the pace that some would prefer.
A piece of good news overlooked by many on Friday was that while the unemployment rate crept higher (from 4.1% to 4.2%) it remains in the vicinity of what is considered “full employment.” A significant rise in the unemployment rate in our view would be necessary to put a recession on the radar screen based on the relative resilience that the weekly initial jobless claims have been showing.
We note that it’s Important to remember that one disappointing economic report does not necessarily establish a trend for more disappointments to follow. The jobs data are known for their volatility and factors of seasonality, demographics (e.g. boomer retirements), and immigration (e.g. the recent border security efforts) may also have contributed to the downside surprises.
The Week Ahead
This week investors will keep a close eye on economic data, tariff negotiation developments, Q4 S&P 500 earnings season and any guidance from managements in earnings calls that could carry weight as to which direction the market takes as the week moves ahead.
We remain bullish on stocks and see opportunity on pullbacks for investors with 2 The Market Strategy Radar Screen August 4, 2025 intermediate- and long-term goals to seek “babies that got thrown out with the bath water.”
Periods of fiscal policy and monetary policy transition as well as periods of elevated geopolitical risk and watershed innovation often find risk and opportunity in close proximity to each other.
Where We Stand
From our perch on the market radar screen, patience and diversification remain key to navigating the markets. Diversification across sectors, market capitalizations, and styles (value vs. growth) with an emphasis on quality in our view can help meet current and future goals and objectives.
Among sectors, we continue to overweight cyclicals over defensive stocks and favor information technology, consumer discretionary, communication services, industrials, and financials. We also maintain some exposure to the energy and materials sectors as demand for these products gains traction as economies show potential to expand globally.
We persist in favoring cyclicals over defensive sectors, maintaining an overweight towards US exposure (we do not foresee an end to US exceptionalism) while maintaining some level of meaningful exposure to both international developed and emerging markets to take advantage of relatively attractive valuations as the world diversifies away from a one-country global supply chain to the benefit of a diverse basket of countries well positioned to gain from what appears to be a secular shift in trade taking place in the post COVID-19 era.
We consider it important for investors to seek out “babies (quality stocks) that get tossed out with the bath water” in market downdrafts as well as a need to maintain a clear head amid day-to-day uncertainty to avoid “missing the signal for the noise.”
Our intermediate- and longer-term outlook for the US economy and the stock market remains decidedly bullish. We believe US economic fundamentals remain on solid footing. As the drag of tight monetary policy eases, job growth and consumption and business fixed investment demand should continue to exhibit.
In our portfolios and recommended allocations, we continue to favor stocks over bonds with an emphasis on US securities while maintaining meaningful exposure to developed international and emerging-market stocks.
Name:
John Stoltzfus
Title:Chief Investment Strategist, Oppenheimer Asset Management Inc.
John is one of the most popular faces around Oppenheimer: our clients have come to rely on his market recaps for timely analysis and a confident viewpoint on the road forward. He frequently lends his expertise to CNBC, Bloomberg, Fox Business, and other notable networks.
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