Asset Management
08/11/2025 Market Strategy
August 11, 2025
Keep on Keepin’ On
Resilience Remains Our Watchword
Key Takeaways
- Equity markets rallied last week as investors expect the Fed to cut rates in September after the weak July jobs report and as US tariff and trade policy is coming into clearer focus. We expect the Fed to deliver at least a 25bp cut in September.
- With 91% of the companies of the S&P 500 having reported, profits are up 11.4% from a year earlier on revenue growth of 6%. Prior to the start of the season, Forbes put expected earnings growth at 4.8% from a year earlier.
- Eight of the 11 sectors are seeing positive earnings growth, with three cyclical sectors (communication services, information technology, and financials) showing double-digit growth.
- This week just six companies of the S&P 500 are scheduled to report; results of just 16 more are due the week of Aug. 18 as the season winds down.
- This week brings the first indications of inflation pressures in July with the CPI and PPI reports due. Bloomberg’s survey of economists shows a 0.3% rise expected for the “core” CPI (excluding food and energy), which would bring the 12-month change to 3% from 2.9% in June.
This week with the S&P 500 earnings season winding down, we expect the Consumer Price Index and its “core” (ex-food and energy) readings this Tuesday and the producer price index on Thursday to garner considerable attention from traders and investors.
The broader market churn in the day-to-day activity of late appears to be revisiting attention to inflation with tariff activity and stickiness in inflation data remaining high on the market’s worry list.
So far, the broad market index has deftly managed to climb the proverbial “wall of worry” this year notwithstanding periods of retracement before moving higher.
As a result, a mix of high-quality growth sectors (technology and communications services) along with some “growthier” value plays (like the industrials and utilities sectors) have garnered considerable attention on investor’s radar screens of late to the disfavor of midcap and small cap stocks.
An emphasis on quality amongst stock picks and sector picks these days appears key for the most part for performance even as the “wild west” (to conservative investors) of “meme stocks” and “crypto plays” capture attention among some denizens of the market that demand excitement
All Eyes on the Fed
With the disappointing July jobs gain and the revisions to the two prior months fresh in market participants’ collective memories, expectations for a Fed rate cut in September have gained in prominence as reflected in Fed Funds futures.
In our view, the Federal Reserve would have some solid justification in cutting its benchmark rates in September considering its sensitivity to its dual mandate to provide monetary policy that keeps inflation in check and an unemployment rate a level considered “full employment” (between 3% and 4% to allow for the dynamics in the job market).
We currently look for a 25 to 50 bps rate cut in September as a one-year anniversary “down-payment” by the Fed for Wall Street and Main Street to further signal that the central bank’s rate hike cycle is indeed in the process of being wound down.
Investors should expect that the CPI and PPI numbers this week are likely to weigh on the stock and bond markets’ performance and on the Fed’s consideration of trimming its benchmark rate next month.
While recent economic data has been showing evidence of slowing causing some to worry about recession risk, we believe that some degree of slowing should not come as a surprise considering that since March of 2022 the Fed hiked its benchmark interest rate eleven times, paused fourteen times, and cut rates just three times.
The amazing thing, in our view, is that for all the dramatic increase in its benchmark rate (from a band of 0% to 0.25% to a band of 5.25% to 5.50% and since last year’s three cuts in Sept., Nov., and Dec. to a band of 4.25% to 4.5%) the Fed has avoided pushing the US economy into recession.
We attribute the Fed’s success so far in bringing down inflation from over 9% to around 2.9% without inducing an economic recession to its high degree of sensitivity to managing its dual mandate this rate hike cycle.
So far, the broad market index has deftly managed to climb the proverbial “wall of worry” this year notwithstanding periods of retracement before moving higher.
Economic resilience along with the ability for business and the consumer to navigate what remain challenging waters remain key to progress.
We persist bullish in our view of prospects for the US economy and the markets.
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 resilience.
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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